The Strategic Logic of Coercion: Why Cooperation Isn't Always the Winning Move

KEY POINTS

• A 2012 mathematical proof overturned decades of optimism about cooperation, showing that "extortionate" strategies—cooperating selectively while applying calibrated pressure—can systematically extract disproportionate gains in competitive environments.

• Experiments reveal that up to 40 percent of people adopt coercive bargaining tactics when conditions favor them, and groups preferentially choose such individuals as leaders over consistent cooperators.

• The pattern appears across domains: from Trump's Greenland demands and Putin's territorial assertions to Apple's App Store policies and late-stage investment negotiations—succeeding whenever targets lack credible alternatives to the relationship.

👉 Bonus: Below you will find five ChatGPT prompts that you can use to develop your expertise in this area.

When President Trump declared this month that he would not rule out using military or economic force to acquire Greenland, the reaction from European allies ranged from bewilderment to alarm. Here was the leader of the world's most powerful democracy threatening coercion against a NATO partner—while simultaneously insisting that America's broader security commitments remained rock solid.

The apparent contradiction masked a deeper strategic logic, one that recent advances in game theory have illuminated with uncomfortable clarity: In competitive environments with limited alternatives, cooperation can be exploited. And those willing to do the exploiting often win.

For decades, the prevailing wisdom in business strategy, international relations, and organizational leadership held that sustained cooperation beat ruthless self-interest. The idea wasn't just ethical—it was supposedly backed by rigorous mathematical proof. But a body of research over the past decade has fundamentally revised that optimistic conclusion, revealing why coercive bargaining succeeds even when it corrodes trust and strains relationships.

The implications extend far beyond geopolitics. They touch every domain where power is concentrated and exit is costly: from corporate boardrooms to investment negotiations, from platform economics to high-stakes partnerships.

The Cooperative Consensus

The intellectual foundation for cooperation's supposed superiority came from Robert Axelrod, an American political scientist who in 1984 demonstrated through computer tournaments that reciprocal strategies outperformed purely selfish ones in repeated interactions. His work suggested that even in competitive situations—the famous "Prisoner's Dilemma"—mutual benefit would eventually prevail over individual advantage.

The finding resonated powerfully in the post-Cold War era. As Western democracies experienced decades of relative peace, expanding trade networks, and increasingly dense international institutions, the so called "folk theorem" provided scientific validation for an optimistic worldview. Cooperation wasn't naive—it was mathematically optimal.

The insight shaped everything from corporate culture initiatives to climate negotiations. Management consultants preached win-win thinking. Diplomats built frameworks for mutual gain. Even hardball competitors were counseled to maintain long-term relationships.

Then, in 2012, physicist William H. Press and mathematician Freeman J. Dyson published a paper in the Proceedings of the National Academy of Sciences that shattered the consensus.

The Extortion Equilibrium

Press and Dyson proved mathematically that repeated games permit a third strategic posture—neither cooperative nor purely self-interested—that systematically extracts disproportionate gains. They termed it "extortionate" strategy.

An extortionist cooperates frequently enough to keep the relationship viable but defects in calibrated ways that force counterparts into an uncomfortable choice: accept structurally worse outcomes, or abandon cooperation entirely and lose everything.

The mathematical proof showed that against such a strategy, the rational response is often to accept the loss. The alternative—complete non-cooperation—hurts both parties, but hurts the weaker party more.

Crucially, extortion succeeds not through deception but through transparency. The target understands exactly what's happening. They simply lack better options.

Subsequent research tested whether this theoretical possibility translated into real behavior. Manfred Milinski and Christian Hilbe at the Max Planck Institute for Evolutionary Biology conducted experiments where human participants faced off in repeated Prisoner's Dilemma scenarios. The results were striking: up to 40 percent of participants consistently employed extortionate strategies when conditions favored them.

Even more troubling, when asked to select representatives for group negotiations, participants preferentially chose players who had demonstrated extortionate tendencies over those who had cooperated consistently. The research suggested that people don't just tolerate coercive bargaining—they actively reward it with leadership positions.

The Emotional Toll

Participants subjected to extortionate strategies in the experiments reported intense frustration. Many eventually ceased cooperation entirely, even at significant personal cost, once the imbalance became unmistakable. Milinski described subjects emerging from sessions with "genuine fantasies of hatred" toward their unknown opponents.

This pattern—compliance followed by sudden, costly rupture—appears repeatedly in real-world systems. Partnerships dissolve abruptly. Alliances fracture without warning. Teams stop functioning long before formal separation.

The breakdown arrives late, often after the extortionist has secured substantial gains. But it arrives.

Recent research by mathematician Nikoleta Glynatsi at Japan's RIKEN Institute for Computer Sciences adds nuance to this picture. Her simulations suggest that the most effective counter-strategies aren't rigid reciprocity but context-dependent flexibility—adapting responses based on the full history of interaction, the stability of the environment, and the availability of alternatives.

But such flexibility requires something many actors lack: genuine strategic options. Without credible alternatives or the ability to coordinate with others, even sophisticated responses to coercion often amount to managed decline.

Geopolitics as Game Theory

Viewed through this framework, recent geopolitical patterns look less anomalous and more structurally predictable.

Russia's annexation of Crimea in 2014 followed the extortion playbook precisely: seize a discrete objective while preserving broader economic and diplomatic ties. Moscow continued natural gas deliveries to Europe, maintained selective cooperation on issues like Iran, and kept diplomatic channels open—even as it violated territorial sovereignty.

The strategy worked, at least initially, because European nations faced a brutal calculation: accept the loss of Crimea, or rupture the entire relationship and absorb massive economic costs. Most chose the former.

President Trump's approach to Greenland mirrors this logic. By isolating one demand while emphasizing continued alliance cooperation, the administration creates asymmetric pressure. The message to Denmark and European allies is clear: accommodate this specific requirement, or risk uncertainty across the entire security relationship.

The strategy doesn't require consensus or even broad support. It relies on the assumption that counterparts will prefer an unfavorable accommodation to fundamental rupture—particularly when the target issue matters vastly more to the coercer than to them.

According to Reuters, Trump has instructed his administration to explore "options" for acquiring Greenland while declining to rule out force. The formulation is deliberate: maintain cooperation on most fronts while escalating pressure on one, making the cost of total non-cooperation appear disproportionate.

Corporate Parallels

The same dynamics appear throughout business and finance, often in less dramatic but equally consequential forms.

Technology platforms provide textbook examples. Apple's App Store policies maintain a broadly cooperative developer ecosystem while imposing unilateral terms—30 percent revenue shares, restricted payment options—at critical choke points. Developers comply not because the terms are fair but because the alternative is exclusion from the iOS market.

Microsoft faced similar antitrust scrutiny in the 1990s for leveraging its operating system dominance. More recently, Amazon's relationships with third-party sellers exhibit the pattern: broad marketplace access combined with selective policies that advantage Amazon's own products.

In each case, intervention came only after prolonged periods where counterparties lacked practical alternatives. The extortion succeeded until the institutional environment changed—through regulation, competitor emergence, or coordinated resistance.

Private equity and late-stage financing often follow comparable scripts. When a distressed company faces a take-it-or-leave-it term sheet from its only viable investor, the negotiation is theoretical. The investor dictates terms; the company accepts or fails. The relationship continues, but on conditions determined by leverage rather than mutual benefit.

Furthermore, elite sports offer unusually clear illustrations. Star athletes have applied selective pressure during contract negotiations or transfer disputes, maintaining professional commitment on the field while increasing off-field leverage. Clubs, for their part, have delayed extensions, exercised options or altered roles to extract concessions without openly breaking relationships.

These aren't moral failures. They're structural outcomes. Extortion becomes attractive—and feasible—when power is concentrated and exit is prohibitively expensive.

5 PROMPTS THAT ATHLETES CAN USE TO DEVELOP AND BUILD EXPERTISE

• Contract & Team Leverage: I'm [negotiating/considering offers in my sport]. Analyze my situation for extortion dynamics: Where am I locked in? What credible alternatives should I develop before committing?

• Sponsorship Deal Structure: I'm evaluating [sponsorship opportunity]. Using game theory, help me spot: What terms could change after I'm committed? How do I preserve exit options?

• Post-Career Transition Strategy: I'm transitioning to [business/media/coaching]. Help me avoid locked-in relationships: What portfolio approach protects my leverage as I build my second career?

• Long-term Strategy Design: Given that cooperation without alternatives creates vulnerability to extortion, help me redesign my approach to [business strategy/partnership portfolio/vendor relationships]. What redundancies, alternative pathways, or coalition-building opportunities should I develop? How do I balance efficiency gains from concentrated relationships against strategic risk?

• Investment Due Diligence Framework: I'm evaluating [investment/acquisition/partnership]. Using the extortion equilibrium framework, help me assess: What dependencies would this create? Could the counterpart apply selective pressure post-commitment? What would my options be if terms changed after I'm locked in? How can I structure this to preserve strategic flexibility?

👉 Please get in touch for more prompts or the best of our Custom GPTs to use in your situation.

Strategic Implications for Leaders

For executives, investors, and leaders in high-performance environments, the research yields several uncomfortable insights.

First, cooperation without alternatives is vulnerability. The ability to walk away, to retaliate credibly, or to coordinate with others isn't supplementary to cooperative strategy—it's foundational. Without these capabilities, even the most sophisticated negotiation tactics amount to choosing which unfavorable terms to accept.

Second, flexibility beats rigidity. Glynatsi's research demonstrates that neither pure cooperation nor pure reciprocity ("tit for tat") performs optimally across varying conditions. Success requires adapting to context: the nature of the relationship, the stability of the environment, the history of interactions, and the availability of outside options.

Third, relationship durability has limits. The experiments show that even profitable extortion generates intense resentment that eventually triggers rupture. Leaders employing coercive tactics may secure short-term gains while systematically eroding the conditions for long-term cooperation.

Fourth, institutional design matters profoundly. Outcomes vary dramatically based on switching costs, information availability, enforcement mechanisms, and the possibility of third-party coordination. Organizations and systems that reduce power asymmetries—through competitive markets, regulatory oversight, or coalition-building—make extortion less feasible and less profitable.

The Darker Equilibrium

The optimism of the late 20th century rested on the assumption that interdependence and repetition would naturally moderate conflict. The research of the past decade suggests a more conditional truth: cooperation works when participants can leave, when they can retaliate, when they can coordinate—or when institutional structures make exploitation costly.

Absent these conditions, coercive bargaining isn't an aberration. It's an equilibrium.

Trump's Greenland demand, like Putin's territorial assertions, tests whether dense systems of cooperation can be leveraged selectively by those willing to concentrate pressure while maintaining broader engagement. The strategy succeeds when the target values the overall relationship enough to absorb discrete losses rather than risk total rupture.

The uncomfortable question—for governments, corporations, and leaders across domains—isn't whether extortion exists as a viable strategy. The evidence, both theoretical and empirical, confirms that it does. The question is how long organizations are willing to absorb its costs before concluding that cooperation, on those terms, is no longer worth preserving.

For the generation that came of age during the post-Cold War consensus, the shift represents a jarring recalibration. The peaceful decades weren't evidence of cooperation's inevitable triumph. They were a contingent outcome, dependent on specific power distributions and institutional arrangements that are now under strain.

The research suggests the future won't be defined by cooperation's collapse but by a more demanding reality: cooperation must be actively defended, structurally supported, and strategically conditioned on credible alternatives.

In the meantime, we're learning what game theorists have recently proved—that the space between pure cooperation and pure conflict contains a third zone, one where selective coercion can thrive as long as the coerced have nowhere else to go.

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I really appreciate you reading my note today.

Peace,

Irg

Irg’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. This work may feature assets and entities in which the author has invested.

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