Over the course of a few games, players tended to become less cooperative (imposing more tariffs overall) and more retaliatory (introducing tariffs of their own in response their opponent’s tariffs). And they became slightly less likely to mimic the behavior of their trading partner. All of this was a recipe for trade wars.
Much like in our earlier nuclear standoff game, players were aggressive — possibly to a fault. In 58 percent of the games we analyzed,1 the winner was worse off than they would have been under free trade.
This trade game is essentially a repeated prisoner’s dilemma — a workhorse model of game theory that captures the tradeoff between mutually beneficial cooperation and individually beneficial betrayal. If we play a prisoner’s dilemma just once, there’s only one outcome where neither side can do better with a different strategy: both sides defect. Any strategy that reaches this balance is called a Nash equilibrium, and game theorists crave these solutions.