Tanya and Cinque have been arrested for robbing the Hibernia Savings Bank and placed in separate isolation cells. Both care much more about their personal freedom than about the welfare of their accomplice. A clever prosecutor makes the following offer to each. “You may choose to confess or remain silent. If you confess and your accomplice remains silent I will drop all charges against you and use your testimony to ensure that your accomplice does serious time. Likewise, if your accomplice confesses while you remain silent, they will go free while you do the time. If you both confess I get two convictions, but I'll see to it that you both get early parole. If you both remain silent, I'll have to settle for token sentences on firearms possession charges. If you wish to confess, you must leave a note with the jailer before my return tomorrow morning.”
Puzzles with the structure of the prisoner's dilemma were devised and discussed by Merrill Flood and Melvin Dresher in 1950, as part of the Rand Corporation's investigations into game theory. The title “prisoner's dilemma” and the version with prison sentences as payoffs are due to Albert Tucker, who wanted to make Flood and Dresher's ideas more accessible to an audience of Stanford psychologists.
See the full article at http://plato.stanford.edu/entries/prisoner-dilemma/