RWA Ecosystem
  • RWA Ecosystem
  • I. Origins of the RWA Ecosystem
  • II. Economic Theory of RWA Ecosystem
    • Internal Coordination Theory
    • The Relationship Between Material Economy and Digital Economy
    • Game Theory in the RWA Ecosystem Protocol
      • Prisoner's Dilemma
      • RWA Ecosystem Game Theory Explanation
    • Internal Coordination Theory Applied to RWA Ecosystem Protocol
      • Policy Levers
    • How These Mechanisms Create an Economic Flywheel
  • III. RWA Ecosystem Protocol Operation Mechanisms
    • Treasury Contract
    • Sale Contract
    • Bond Contract
      • Liquidity Bond Sales
      • Reserve Bond Sales
      • Bond Summary
    • Staking Contract
      • Staking & Unstaking
      • Rebase
    • Reward Unlock Period Contract
    • Energy Points Algorithm Contract
    • Lending Agreement Contract
  • IV. RWA Ecosystem Internal Operating Mechanism Diagram
  • V. RWA Token Explanation
  • VI. RWA Ecosystem Ecosystem Construction Plan
    • Evolution of Token Economics
    • The Challenges of DeFi 1.0
    • The Upgrades and Innovations of DeFi 2.0
    • DeFi3.0 Core Upgrade
    • RWA Ecosystem Ecosystem Positioning
    • Ecological Development Rules
    • RWA Ecosystem
    • Ecosystem Development Roadmap
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  1. II. Economic Theory of RWA Ecosystem
  2. Game Theory in the RWA Ecosystem Protocol

Prisoner's Dilemma

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Last updated 4 months ago

The Prisoner's Dilemma is the first game theory students learn because it's simple and applicable to many strategic situations. Here's the story:

Two thieves plan to rob a store but are arrested for trespassing. The police suspect a robbery but lack evidence. They offer a deal: confess, and the suspects will face a lesser charge.

You’re charged with trespassing, which means 1 month in prison. If you confess, I’ll drop the charge and release you. Your friend will face 12 months for attempted robbery. If you both confess, you’ll each serve 8 months.

The suspects are separated and told:

Both want to minimize their prison time. What should they do?

Using a payoff matrix allows us to condense all information into an easy-to-analyze chart:

Player 1's available strategies are rows (Silent or Confess), with the corresponding payoffs as the first number in each cell. Player 2's available strategies are columns, with the corresponding payoffs as the second number in each cell.

  • Quiet: Silent

  • Confess: Confess

  • Blue numbers: Player 1's payoff

  • Red numbers: Player 2's payoff

  • -1: 1-month imprisonment

  • -8: 8-month imprisonment

  • -12: 12-month imprisonment

  • 0: Released without conviction

Hypothesis & Conclusion

  • We assume both players aim to minimize their prison time.

  • We assume there is only one interaction.

  • We assume both players are selfish (i.e., they don't care about their friend's fate).

  • We also assume players cannot interact and plan their responses in advance.

These assumptions lead to a suboptimal outcome (confess, confess) with (-8, -8). If both remain silent, they would serve less time, but this is an unstable equilibrium. The only Nash equilibrium is (confess, confess), where no player wants to deviate from their strategy.

However, if they cooperated and stayed silent, they would achieve a better outcome. This highlights the dilemma: cooperation benefits both, but individuals often act selfishly, prioritizing their own interests. This insight is key for both society and the RWA Ecosystem.