Game Theory Redux

Game theory is the study of cooperation and conflict between independent decision makers. The subject is fascinating to economists, politicians, diplomats, entrepreneurs, generals, managers, biologists, psychologists, computer scientists, and lest we forget, gamblers. There are zero-sum games, or win-lose situations, where my gain is your loss. There are also non-zero sum games, or win-win situations, where collaboration trumps competition. Popular English expressions such as ‘tit for tat’, ‘nice guys finish last’, and ‘forgive and forget’ have links to game theory. As a science of logical decision making, it runs the gamut of choices made by humans, computer programs, companies, cities, societies, as well as governments. 

For strategy lovers, two books on game theory are worth a read. First, The Evolution of Cooperation by Robert Axelrod. Second, Nonzero by Robert Wright. This column is about the first book and my goal is to illustrate how it can transform our approach to the world and how the world responds to us. The book begins by asking a set of simple questions. Can cooperation emerge spontaneously between self-interested parties in a polarized world? Is there a strategy we can follow as individuals, professionals, and businesses to automatically invite cooperation from counter parties? Can we unilaterally influence others to treat us exceptionally well? The answer to these questions is yes. Axelrod prescribes the way to achieve it. 

His prescription comes in the form of three sharp rules validated by competitive computer simulations. The first rule says it is strategically important to be nice to others. One must never be the first to start a conflict or create a provocation. The best default strategy in life and business is to genuinely cooperate with others and treat everyone with affection and respect. The second rule says that despite being nice and cooperative, if a counter party unilaterally starts a conflict with us, it is a very good strategy to respond with toughness and retaliate against the aggressor. The third rule says that it is important to practice a strategy of proportionate response. Once a punishment is meted out to the aggressor, we must not be tempted to over-retaliate. Instead, we must quickly erase the memory of the aggression committed against us and return to the first rule of being nice. 

Axelrod seems to turn conventional wisdom on its head. Instead of finishing last, nice guys apparently finish first. In order to influence others to readily cooperate with us, we must be nice, we must be tough, and we must be forgiving, precisely in that order. It sounds miraculously simple, but the question is, why does this three-pronged strategy work so well? To understand its true power, let us examine the impact of these rules on others. It is perhaps safe to assume that a majority of people, say 70-80% of the population, are well-meaning citizens who wish to lead a peaceful and conflict-free life, and do not relish the prospect of harming or exploiting others. When we practice the first rule, which exhorts us to be unilaterally nice, it resonates extremely well with this majority. It returns our favor enthusiastically and makes a mental note never to commit any offenses against us. They become cooperators. In effect, the first rule of niceness converts the biggest chunk of the population into our natural allies cheaply and effortlessly. 

But what about the remaining population waiting to exploit our good-natured selves? The ethically-challenged troublemakers that interpret our niceness as weakness and try to take us for a ride? The shameless traveler who jumps the airport security queue, that freeloading colleague who does not pay a fair share of the restaurant bill, the difficult customer who does not clear invoices on time, or that sneaky vendor who slips in a defective product when no one is looking? Enter the second rule of toughness. It says that if a counter party is taking us for a gullible sucker, our retaliation must be swift and visible. While our exact response may vary based on circumstance, the link between offending action and consequent retaliation must be clear as daylight. In essence, the second rule of toughness reminds troublemakers that hostile actions have painful consequences. And so the next chunk of the population abandons its bad behavior and falls in line. They either become cooperators, or at least cease their hostilities. 

So far so good. But why a third rule? Long-running feuds feed on an ongoing sense of victimhood. Over time, such conflicts can degenerate into endless recrimination and turn ugly. Nobody wins. It is the ultimate lose-lose proposition. Consider the Israeli-Palestinian conflict. Given its long and sad history, no one remembers or even cares who is right. Both sides are locked in a chronic cycle of violent over-retaliation, snuffing out two lives of the other to avenge one of their own. Enter the third rule of forgiveness. Proportionate response followed by forgiveness is designed to stop the cycle of recrimination before it can even begin. It can help aggressors reflect on the errors of their ways. It can remind them there is a very valuable prize, our friendly cooperation, waiting for them. If only they would stop trying to harm us. 

Let us contemplate what would happen if the three rules were to be shuffled and their sequence interchanged. Would it still work? Being nice-by-default and tough-as-an-exception is a winning strategy, as Axelrod’s computer simulations have consistently shown. In contrast, being tough-by-default and nice-as-an-exception turns out to be a losing strategy. Instead of eliciting greater cooperation from the world, such a strategy invites stubborn non-cooperation and escalates hostilities. Instead of making our lives and businesses better, it can leave us miserable. Instead of strong tailwinds propelling us forward, stiff headwinds can slow us down. Recall the old adage that says when the going gets tough, the tough get going. Let us take that with a large pinch of salt. Truth is, when the tough get going, their going can get tough!.

Santanu Paul is co-founder of TalentSprint, a Youth Career Accelerator