The Prisoner's Dilemma and the Role of Information in Setting Advertising Budgets

This study examines how advertising budget setting, framed as a prisoner's dilemma, is affected by information on the competitive situation and characteristics of the decision maker. Hypotheses are tested using experiments in which subjects set advertising budgets. Results indicate that subjects were generally competitive, but also based their strategy selections on what they expected their opponents to do, what their opponents did last time, whether the competitive relationship was expected to continue, market shares, and whether the subject's profit objectives were short- or long-term. Individual differences also played a part in determining strategy selection.