Why the Prisoner’s Dilemma Explains Tobacco Advertising Strategies

Game theory is closely linked to everyday life; this article presents the classic Prisoner’s Dilemma and a similar “tobacco advertising” case, while also teaching how to read and use the regular representation (payoff matrix) of a game.

Prisoner’s Dilemma

The Prisoner’s Dilemma is one of the most studied and influential examples in game theory. Table 1‑1 (image) shows its payoff matrix.

Bob and Al, two thieves, are arrested and interrogated separately. Each must choose to confess or stay silent. If both stay silent, each serves 1 year; if both confess, each serves 10 years; if one confesses while the other stays silent, the confessor goes free and the silent one receives 20 years.

The strategies are “confess” or “stay silent”. The numbers in each cell represent the years of imprisonment for Bob (row) and Al (column). For example, if both confess each gets 10 years; if Al confesses while Bob stays silent, Bob gets 20 years and Al gets 0.

To find the rational strategy, each prisoner reasons about the other’s choice. Both conclude that confessing dominates, leading to both confessing, which yields a worse collective outcome than mutual silence.

This paradox illustrates how individually rational actions can produce a suboptimal result, a pattern seen in many real‑world situations such as arms races, traffic congestion, and over‑exploitation of resources.

The Prisoner’s Dilemma involves two players but the idea extends to multi‑party interactions.

If communication and coordination were possible, a different outcome could be achieved.

Repeated interactions can change the equilibrium compared to a one‑shot game.

Other reasoning methods may also be valid; the dilemma is not the only rational solution.

Tobacco Advertising

The commercial case mirrors the Prisoner’s Dilemma. Before 1964, TV cigarette ads were common. After the 1964 Surgeon General’s Report, four major U.S. tobacco companies negotiated a pact that took effect at the end of 1971, guaranteeing no TV advertising.

Assume two firms, “Firm A” and “Firm B”, each can “advertise” or “not advertise”. If both refrain, they split the market with high profit (low cost). If both advertise, they still split the market but incur advertising costs, reducing profit. If one advertises while the other does not, the advertiser captures the largest market share and highest profit.

Using the same payoff matrix logic, each firm’s dominant strategy is to advertise, leading both to advertise and earn a lower profit (4) instead of the higher profit (8) they could obtain by mutual restraint. Government intervention, as in the historical case, can enable firms to limit advertising and achieve the better outcome.

In summary, the Prisoner’s Dilemma and the tobacco advertising example demonstrate how rational self‑interest can lead to collectively undesirable results, and how external coordination can improve outcomes.

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Reference: Roger A. McCain, "Game Theory: An Introduction to Strategic Analysis" (translated by Lin Qian).