Thread by @TaylorPearsonMe

I think understanding basic game theory concepts like the prisoner's dilemma is really useful, but it leaves at least two important concepts out:

1. Reputation

2. Context Dependence.

The gist of the prisoner's dilemma that [[Robert Axelrod]] showed was that by getting people to engage in iterated prisoner's dilemmas instead of one off, you promote cooperative

(If you're unfamiliar with the example, I wrote a short explanation) behavior.taylorpearson.me/interestingtim…

If I am just going to do business with you once, then I am most inclined to just maximize the value for that transaction.

If I know we are going to work together for a long time, then even the completely selfish play is to cooperate and focus on maximizing the lifetime value of our interactions even if it's not the best for me in each iteration.

This is a really helpful model, but I think still understates the value of a tit-fot-tat pro-social strategy because it ignores reputational benefits.

Warren Buffett gets access to great opportunities even with people he has never done business with because he has a reputation for cooperating and being a good actor.

He got the Goldman Deal in 2008 in part because of this reputation (and the public perception of him - again, due to his reputation) finance.yahoo.com/news/warren-bu…

So engaging in pro-social behavior benefits you not just with the party you are working with but also any parties which they know or are observing your interactions which I think makes the long-term benefits even stronger.

The flip side to this is context dependence.

The best default strategy is tit for tat. But, if you are engaging with someone you know is a bad actor then you should go straight to the "always defect" strategy because you know they will always defect.

In real life, the better option is to just avoid these people like the literal plague. I remember the first time I worked with someone and realized they were probably a clinical sociopath/narcissist.

They were engaging in an "always defect" strategy and so operating in good faith only hurt me.

I kept trying to fix this but it never worked and eventually realized the only solution is to just never work with these people.

When you realize how much fast things compound when you are playing with other pro-social players then there is almost no cost too high (real or opportunity) for getting out of a deal where you are interacting with someone that always defects.

In the short term, it may seem more promising but playing with the pro-social player will compound much faster in the long run.