Prisoners Dilemma And Public Goods Theory:

The Prisoner's dilemma is a type of non-zero sum game in which two players try to get rewards from a banker by cooperating with or betraying the other player. In this game, it is assumed that the primary concern of each individual player ("prisoner") is self-rewarding; i.e. trying to maximize his own advantage, with less concern for the well being of the other players. No matter what the other player does, one player will always get a greater payoff by playing defect (i.e. betraying one's partner). Since in any situation playing defect is more beneficial than cooperating, all rational players will play defect.

The unique equilibrium for this game does not lead to a Pareto-optimal solution which states when two rational players play defect even though the total reward (the sum of the rewards received by the two players) would be greater if they both played cooperating with each other. In equilibrium, each prisoner chooses to defect even though both would be better off by cooperating. This is the DILEMMA.

Example:

The police arrest two suspects A and B.  Due to lack of sufficient evidence for a conviction, the police visits both prisoners and offer them the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full ten year sentence. If both stay  silent, the police can only give both prisoners six month for a minor charge. If both betray each other, they receive a two-year sentence each. Each prisoner must make a choice to betray the other, or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. What will  happen? It can be summarized thus:

The dilemma arises when one assumes that both prisoners only care about minimizing their own jail terms. Each prisoner has two  options: to cooperate with his accomplice and stay quite, or to betray his accomplice and give evidence. The outcome of each choice depends on the choice of the accomplice. However, neither prisoner knows the choice of his accomplice. Even if they were able to  talk to each other, neither could be sure that be could trust the other.