What does a prisoner's dilemma illustrate?

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The prisoner's dilemma is a game theory example that demonstrates why firms or individuals may not cooperate, even when it is in their best interest to do so. The dilemma arises because each party has an incentive to act in their own self-interest, which may lead to a suboptimal outcome for both parties. In the case of firms, the dilemma illustrates the difficulty in achieving cooperation or collusion, which could result in a more profitable outcome for all firms involved.

What Does a Prisoner's Dilemma Illustrate