What is the OPTIMAL strategy for building long term trust and cooperation?

"People often talk about the importance of finding answers, but I’ve realized the real power lies in asking the right questions. 'Wander & Wonder' is my series about that very journey: from the days of 'wandering' aimlessly through forks in the road and career decisions, to the 'wonder' moment—that instant I dared to ask and start seeking answers to my own inner callings. Welcome to post #11 in the 'Wander & Wonder' series, and let's think through this question together: " What is the OPTIMAL strategy for building long term trust and cooperation? " - Jasmine Nguyen

In last week's post sharing about the movie "A Beautiful Mind," we explored the Nash Equilibrium – that "stable" state where no one wants to unilaterally change their strategy.

But as we saw in the two-cafe example, "equilibrium" doesn't mean "optimal." The logical trap of the Nash Equilibrium often pushes us into the "Prisoner's Dilemma": a scenario where the most rational individual choice leads to a terrible collective outcome (both slash prices, and both see their profits dry up).

This sounds pretty pessimistic. It’s like a logical destiny that humans are always trapped in selfishness and suspicion.

But life, and especially business, isn't a game we play just once. We meet our competitors, partners, and colleagues over and over again. So, the real questions are:

What happens if the game is repeated? And what is the optimal strategy for building long-term trust and cooperation?

This is the exact topic I want to share today. After watching a fascinating video on the YouTube channel Veritasium, it revealed one of the most beautiful, simple, and powerful strategies ever discovered.

The "Game" of Geniuses: When computers taught us about trust

In the 1980s, political scientist Robert Axelrod asked this exact question. He organized a computer tournament to find the optimal strategy for the "Iterated Prisoner's Dilemma."

He invited game theorists, economists, and mathematicians from all over the world to submit their computer programs (strategies). Some were incredibly complex and malicious, trying to analyze and exploit their opponents. Others were simple.

After hundreds of thousands of rounds, the overwhelmingly winning strategy wasn't the most complex one. It was one of the simplest, submitted by psychologist Anatol Rapoport, called: "Tit-for-Tat" (TFT).

The rules of "Tit-for-Tat" (TFT) are incredibly elegant:

1. Be "Nice": On the first move, always choose to cooperate.

2. Be "Retaliatory": From then on, do exactly what your opponent did to you on the previous move. If they cooperate, you cooperate. If they defect, you retaliate immediately on the next turn.

3. Be "Forgiving": This is crucial. TFT doesn't hold a grudge. As soon as an opponent returns to cooperation (after defecting), TFT immediately forgives and cooperates back.

4. Be "Clear": This strategy isn't ambiguous. It's so simple that the opponent can understand it. They quickly learn that the only way to get cooperation is to cooperate.

TFT won because it achieved the best of both worlds: it was kind and encouraged cooperation, but it was not a "pushover" to be exploited.

A few perspectives on business applications:

This story isn't just a computer experiment. It's a precise model for real-world competition.

Classic case 1: The "Freeship" and Super Sale War of early E-commerce (Shopee, Lazada, and TikTokShop)

Have you ever wondered why every 11/11 or 12/12, all e-commerce platforms (Shopee, Lazada, and TikTokShop) launch a "Super Sale" at the exact same time? Or why, when Shopee launches a "0Đ Freeship" voucher, Lazada immediately counters with a similar "Free Delivery" offer?

They don't necessarily have to meet in secret. They are playing a repeated "Tit-for-Tat" game right before our eyes:

• Cooperate: (A hypothetical scenario) Both reduce promotions to focus on profitability.

• Defect: Shopee decides to launch a massive "1K Sale" and "0Đ Freeship" campaign to "steal" all customers and sellers for the month.

• Retaliate: Immediately, Lazada sees this move and is forced to launch an even bigger "Mega Sale" and "Freeship" campaign to retaliate and defend its market share.

• Result: A "cash-burning" war on promotions erupts. Both platforms spend heavily, and profits are eroded.

After many years, this "game" seems to have reached a different "Nash Equilibrium," one of "tacit collusion": instead of defecting unexpectedly, they seem to "cooperate" in creating shared shopping holidays (11/11, 12/12...). This way, both can predict each other's actions, stimulate the market together, and avoid costly, unexpected price wars.

Classic case 2: The "Early Sale" trap (Black Friday Creep)

This is a perfect example of the Prisoner's Dilemma in marketing. Imagine Black Friday (or a major Super Sale) is a fixed date.

• Choice: Start the sale on the "Official Day" (Friday) or "Go Early" (Thursday, or all week).

• Scenario 1 (Optimal): All retailers "cooperate" and only start the sale on Friday. Customers flood in on that one day, the shopping excitement is high, and stores protect their profit margins for all the days before.

• Scenario 2 (Temptation): Store A thinks: "If I 'defect' and start my sale on Thursday, I'll steal all the early-bird customers who want to avoid the crowds!"

• Scenario 3 (Nash Equilibrium): Store B, C, D... know this (or see A do it). They are forced to "defect" too and also start their sales on Thursday (or even Wednesday) just to defend themselves.

• Result: The "Black Friday Creep" happens. Sales now last all week, or even all month. There is no real "big bang" day, profit margins are eroded across the board, and all retailers are stuck in a tiring race no one really wins. They are trapped in a bad equilibrium, even though they know they'd all be better off if they just "cooperated" and stuck to the one day.

A few perspectives on leadership applications:

What resonates with me most is how TFT applies to leadership and team management. A good leader, instinctively, is a master TFT player.

Recently, I realized this philosophy is identical to the famous "Radical Candor" framework by Kim Scott, a former exec at Google and Apple. "Radical Candor" is built on two axes:

• "Care Personally": This is "Be Nice" and "Be Forgiving."

• "Challenge Directly": This is "Be Retaliatory/Fair" and "Be Clear."

My 15 years of working—witnessing and learning from many great leaders, while also seeing and even experiencing terrible ones—interestingly shaped my own leadership perspective into something very similar to Kim Scott's framework. I've been applying these ideas for years, long before I even knew the game theory behind them. I truly have to admit that learning to be a leader isn't easy, and learning to be a good leader is even harder. It demands so much inner effort, the ability to self-learn, observe, and a constant desire for improvement.

A great leader isn't just "nice." They must be "fair" and "clear" for the good of their employees and for themselves. This is the soul of TFT, expressed in 4 actions:

1. "Be Nice": Understood as empowering and being the one who trusts first. When a new employee joins the team, or when you assign a new project, start with absolute trust. Don't be a "boss" who is always micromanaging, always suspicious, assuming employees will do poor work or "defect." When you give trust and cooperation first, you create a psychologically safe environment for employees to also give their best effort and cooperate.

2. "Be Fair": Set clear boundaries and accountability. This is perhaps the lesson I learned most painfully during my first years as a people lead. Being "too kind" or merciful to someone who is intent on disrupting the team will only make you pay a heavy price. At the time, I equated "kindness in leadership" with my own "personal moral kindness." It took a hard lesson for me to realize that your professional conduct as a leader and your personal conduct in life are not, and should not, always be the same. The values and principles remain, but they adapt to the context and the problem. That's why I later became very fond of the "leadership by context" mindset. "Nice" doesn't mean being exploited. If a commitment is broken (e.g., a missed deadline without warning, repeated poor performance, a negative attitude), as a leader, you must "warn" or "retaliate" immediately. "Retaliation" here isn't yelling; it's a direct feedback conversation, a reminder, or a clear action to show that the behavior is "not OK." If you let it slide, you are unintentionally "training" the whole team that commitments under your leadership don't matter.

3. "Be Forgiving": Don't hold grudges. I will always give a person three chances to fix the mistakes/damage they've caused, because I understand that we are all learning as we go—some just learn faster than others. This is the golden key to being an inspiring leader, in my view. After you've had the direct conversation and the employee has acknowledged their fault, corrected it, and returned to performing well, you must forgive immediately and completely. Don't ever "hold" old mistakes against them. Don't bring up their past failures in future performance reviews. Once they are back on track, your trust must be 100% restored. This allows people to dare to take risks, dare to fail, and know that they always have a way back.

4. "Be Clear": Through transparent communication. Your team must know exactly what the rules of the game are. What does "cooperation" mean? (OKRs, KPIs, cultural values, deadlines...). What does "defection" mean? (Which behaviors are unacceptable). When the rules are clear, people will naturally gravitate towards cooperation.

The story doesn't end there. "Tit-for-Tat" has one critical weakness: it's extremely vulnerable to "noise" or misunderstanding.

Imagine two TFT players playing against each other. They would cooperate forever. But what if just once, a "cooperation" signal is misread as a "defection" (e.g., a critical email goes to spam, a sentence is misinterpreted)? What happens?

• Player A (accidentally) "defects."

• Player B sees this and immediately "retaliates."

• Player A (who is now cooperating) is suddenly "retaliated" against, so they "retaliate" back.

• They fall into a "Death Spiral" of mutual retaliation that never ends, all from one initial misunderstanding.

Later researchers found an even more robust strategy to solve this: "Generous Tit-for-Tat".

The rule is similar to TFT, with one small change: Occasionally (e.g., 10% of the time), proactively forgive, even if your opponent just defected.

That 10% "random generosity" is what breaks the death spiral. It allows one side to de-escalate and restore cooperation.

This lesson is even more profound than TFT: In business and leadership, when things are going badly, when two sides are in a loop of blame and criticism (e.g., a negotiation between a company and a union, a conflict between two departments), be the one to be "generous" first. Be the one to break the loop with a "generous" gesture (a small concession, an apology, a new show of trust), even if you feel "betrayed."

Because in the long run, the goal isn't to "win" every single skirmish. The goal is to build a sustainable "game" where everyone can cooperate and win together.

What do you think of this strategy? Have you ever used it in your work or life?

Share with me,

Jasmine Nguyen