The prisoner’s dilemma is game theory that shows why two rational individuals might not cooperate, even when it appears to be in their best interests to do so. The scenario goes as folllows:
Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge, but they have enough to convict both on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent. The offer is:
(1) If A and B both betray each other, both will serve two years in prison; (2) If A betrays B but B remains silent, A will be set free and B serves three years in prison and (vice versa). If A and B remain silent, both will only serve one year in prison (on the lesser charge).
Betraying a partner offers a greater reward than cooperating with him or her, a rational self-interested prisoner will betray the other, meaning the only possible outcome for two purely rational prisoners is for them to betray each other.
In the GE example, former GE employees know that Immelt, John Flannery or other GE executives will not remain silent on manipulating earnings at the insurance operations. Immelt and Flannery will position themselves so the employees will take the fall. Playing office politics is how they got to be the CEO in the first place. They will throw the employees under the bus as quickly as possible.