Everything in the first three parts of this series — the prisoner’s dilemma, iterated games, tit-for-tat, incentives, Nash equilibrium, commitment — plays out at the largest possible scale in international relations. Nations are players. Power is the currency. And there is no referee.
Understanding geopolitics through game theory doesn’t just explain history. It reveals why “stupid wars” keep happening even when everyone knows they’re lose-lose, and why the current world order is fragmenting along predictable lines.
Power, Not Law, Rules International Relations
Within a country, governance works because four things exist: laws, enforcement (police), adjudication (courts), and consequences (prison, fines). Between countries, these either don’t exist or are too weak to matter.
The United Nations cannot enforce resolutions against the US, China, or Russia when they choose to ignore them. The League of Nations couldn’t prevent Japan’s invasion of Manchuria or Germany’s expansion. International “law” holds only when powerful countries choose to follow it.
Ray Dalio puts it bluntly: “The international order follows the law of the jungle much more than it follows international law.”
This is the structural reality. When powerful countries have disputes, they don’t get lawyers to plead cases before judges. They threaten each other. They apply economic pressure. And when that fails, they fight.
Why This Is a Game Theory Problem
International relations is a prisoner’s dilemma with no enforcer. Every game theory concept we’ve covered maps directly:
No enforcer means no cooperation guarantee. Within countries, laws and police solve the prisoner’s dilemma by punishing defection. Between countries, there’s no equivalent. Nations must rely on the shadow of the future — iterated interactions — to sustain cooperation. When that shadow weakens, cooperation breaks down.
Commitment is everything. Military alliances (NATO), nuclear deterrence (MAD), and treaty organizations are all commitment devices. They work when they’re credible — visible, irreversible, and clear. They fail when they’re not.
Nash equilibria can be terrible. Arms races are stable Nash equilibria — neither side can safely disarm alone, so both keep building. The equilibrium is mutually destructive but self-reinforcing.
Information asymmetry creates danger. Misunderstanding another nation’s intentions or capabilities is one of the most common causes of miscalculation. Intelligence agencies exist to reduce this asymmetry. Bluffing — and being called on it — can trigger wars.
Economic Wars Precede Military Wars
Before shooting starts, there is typically a decade-long period of escalating economic conflict. This is not a vague historical pattern — it’s a structural dynamic driven by game theory.
The Escalation Ladder
- Trade/economic wars — tariffs, import/export restrictions, protecting domestic industries
- Technology wars — restricting tech sharing, export controls on semiconductors, AI competition
- Capital wars — sanctions, asset freezes, cutting off capital market access, weaponizing the dollar and SWIFT
- Geopolitical wars — territory disputes, alliance restructuring, military positioning
- Military wars — shooting starts; at this point all other dimensions get fully weaponized
Each step is a tit-for-tat escalation. One side imposes tariffs. The other retaliates. One side restricts technology exports. The other develops alternatives and responds with its own restrictions. Each move demands a response — backing down signals weakness and invites more aggression.
The 1930s Case Study: US-Japan
The US-Japan escalation is the textbook example of how economic wars become military ones:
- 1930s: Trade tensions build. Both compete for Pacific influence.
- 1940: US passes the Export Control Act. The Pacific Fleet moves to Hawaii. Iron and steel embargo imposed on Japan.
- July 1941: Asset freeze. Panama Canal closed to Japanese shipping. Oil embargo — cutting off 75% of Japan’s trade and 80% of its oil supply.
- December 1941: Japan calculates it will run out of oil in two years. It faces a choice: economic strangulation or military action. It attacks Pearl Harbor.
The entire sequence took roughly a decade. Japan didn’t want war. It was forced into a choice between slow death and a desperate gamble — a choice created by escalating tit-for-tat.
How “Stupid Wars” Happen
Even when war is clearly lose-lose, it happens through game-theoretic dynamics:
- Prisoner’s dilemma — each side fears being attacked first, so both prepare for war, which makes war more likely
- Tit-for-tat escalation — each move requires a response, ratcheting up pressure
- Commitment traps — public positions become impossible to walk back without losing credibility
- Information asymmetry — fast decisions under incomplete information lead to miscalculation
- Nash equilibrium lock-in — once both sides are in an arms race or sanctions spiral, neither can unilaterally de-escalate
Dalio’s observation: “Win-win negotiation is fabulously more rewarding than lose-lose wars, but stupid wars happen anyway through escalation dynamics.”
Dalio’s Big Cycle Framework
Ray Dalio argues that world orders follow roughly 150-year cycles: rising peace and prosperity, followed by devastating conflict, followed by a new order. He identifies six stages, and claims we’re currently in Stage 6 — great disorder.
The characteristics of Stage 6:
- No agreed-upon rules — might is right
- Clash of great powers
- Internal conflict within countries (wealth gaps, political polarization)
- External conflict between countries (trade wars, technology wars, military posturing)
The 1930s Parallel
Dalio’s central warning is the parallel between today and the 1930s:
- Global economic stress creates internal wealth conflicts in every major country
- Countries turn to populist, nationalistic leaders
- Trade wars (like Smoot-Hawley in 1930) make everything worse
- Roughly 10 years of escalating economic, capital, and technology wars precede shooting wars
- Nations with weaker democratic traditions tip toward authoritarianism; those with stronger traditions get populist leaders but maintain institutions
Five Types of Wars
Dalio identifies five dimensions of conflict between nations, each with its own game-theoretic structure:
| War Type | Tools | Game Theory Lens |
|---|---|---|
| Trade/Economic | Tariffs, import/export restrictions | Tit-for-tat escalation, prisoner’s dilemma |
| Technology | Export controls, IP restrictions, talent competition | Information asymmetry, commitment |
| Capital | Sanctions, asset freezes, SWIFT weaponization | Commitment devices, Nash equilibrium |
| Geopolitical | Alliance building, territory disputes, military positioning | Coordination games, Schelling points |
| Military | Armed conflict | All dimensions weaponized simultaneously |
Dalio’s Core Principles for Disorder
- Have power, respect power, use power wisely — power beats agreements every time
- Don’t fight wars you’ll lose — negotiate the best settlement instead
- Financial strength to outspend rivals is one of the most important powers — the US beat the Soviet Union in the Cold War this way
- The best power is hidden power — showing it invites arms races
- Two certainties about war: it won’t go as planned, and it will be worse than imagined
What Game Theory Adds to Geopolitics
Without game theory, geopolitics looks like chaos — unpredictable leaders making unpredictable decisions. With game theory, patterns emerge:
Why cooperation breaks down: There’s no enforcer. International cooperation is a repeated prisoner’s dilemma sustained only by the shadow of the future. When a rising power threatens to change the balance, the shadow shortens and cooperation unravels.
Why escalation happens: Tit-for-tat dynamics in the absence of communication channels. Each side responds to the other’s moves, ratcheting up pressure. Neither can unilaterally stop because backing down is costly.
Why bad equilibria persist: Arms races, trade wars, and sanctions spirals are Nash equilibria — stable but destructive. No single nation can improve its position by changing strategy alone. Breaking out requires changing the rules, the information, or the players.
Why commitment matters: Alliances, deterrence, and public positions are commitment devices. Their credibility determines whether they prevent conflict or provoke it. An incredible commitment is worse than no commitment — it invites testing.
The frameworks aren’t a crystal ball. But they turn headline-driven reactions into structural analysis. And as Dalio warns, the structural dynamics we’re seeing today rhyme uncomfortably with the 1930s.