“The enemy dictates my terms to me as I dictate his to him.” Carl von Clausewitz (1832, p. 75)
There is a recurring failure in modern leadership that cuts across the geopolitical stage, the domestic political arena, and the corporate boardroom. It is not born of a lack of intelligence, nor is it the result of insufficient data. It is something far more fundamental and, consequently, far more dangerous. It is the belief that outcomes can be engineered without fully accounting for the response of others.
In the disciplined study of Game Theory, this cognitive blind spot is known as ‘Maximax’ thinking. It is the selection of a course of action based purely on the best possible outcome, operating under the fragile assumption that everything will go perfectly. It is the strategic equivalent of charting a course across the ocean while assuming the wind will only ever blow at your back.
In a multi-player system, where every action generates friction and every competitor possesses agency, that assumption is almost always fatal. What makes Maximax thinking particularly dangerous is not that it always fails, but that it often appears to succeed – at least initially. Early wins reinforce confidence. Momentum builds. The strategy begins to feel inevitable. It is only when the system starts to respond that the underlying flaw becomes visible. By then, however, the organisation is already committed – financially, operationally, and psychologically – to a path that is increasingly difficult to reverse.
The Parable of the Frog in the Well: The Peril of Limited Perspective
To understand why otherwise capable leaders fall into this trap, it is useful to return to the ancient parable of the ‘frog in the well’. A frog lived its entire life at the bottom of a deep, narrow well. Looking upward, it could see a small, perfect circle of blue sky. From that vantage point, it believed it understood the entire world. When told of the ocean – vast, unpredictable, and boundless – it simply could not comprehend it. Its limitation was not intelligence, but perspective.
For decades, traditional, compliance-focused accounting and legacy management frameworks have acted as the walls of that well. Executives were trained to look upward at a small, static circle of financial metrics, believing they were seeing the entire strategic universe. Strategy became an exercise in optimisation within a controlled environment. The external world was assumed to be stable, predictable, and largely passive.
But the modern strategic landscape is not a well; it is an ocean. Transitioning to true strategic leadership requires escaping the well and embracing disciplines that force leaders to map the dynamic, interacting elements of the broader environment. Strategic Business Analysis and integrated decision-making frameworks expand the field of view, but it is Game Theory that provides the intellectual foundation for navigating it. Its central premise is uncompromising: strategy is not intention. Strategy is interaction.
Maximax thinking fails because it removes this interaction from the equation and replaces it with assumption. It imagines a world in which outcomes can be dictated, rather than negotiated through response.
The Nash Equilibrium: Playing the Whole Game
To escape the Maximax trap, leaders must internalise a different strategic logic. One that was formalised by mathematician John Nash in 1950, and which remains the most important idea in strategic decision-making that most executives have never been taught.
A Nash Equilibrium is reached when no player can improve their outcome by changing their strategy unilaterally, given what every other player is doing (Nash, 1950). It is not the best possible outcome for any single player. It is the stable outcome that emerges when every player accounts for the responses of others.
This distinction matters enormously.
Maximax thinking asks, ‘What is the best I can achieve?’ Nash thinking asks, ‘What is the best I can achieve given that every other player is also optimising against me?’
The difference between those two questions is the difference between a strategy and a wish.
In practice, this means leaders must build response modelling into their strategic processes before committing resources. It should not be a risk register that sits in an appendix, but rather a central input to the decision itself. The question is not whether the system will respond. It will. The question is whether the response has been modelled, stress-tested, and priced into the strategy before the first move is made.
Leaders who do this do not eliminate uncertainty. They stop being surprised by it.
The Geopolitical Chessboard: The Fiction of the Passive Opponent
The consequences of this failure are most visible in geopolitics, where the illusion of unilateral control repeatedly collapses under the weight of response. Consider the strategic logic behind escalation in relation to Iran. The reasoning appears straightforward: apply overwhelming pressure, signal absolute dominance, and expect the adversary to concede.
But this logic assumes passivity.
Iran is not passive. It is a strategic actor capable of reshaping the game itself. Faced with conventional pressure, it can escalate asymmetrically, leverage regional proxies, and threaten the disruption of global energy supply chains. The critical insight is that it does not need to win. It only needs to ensure that its opponent does not achieve its intended outcome.
That alone collapses the Maximax payoff.
What begins as a pursuit of dominance quickly degenerates into mutual damage, where both sides incur cost and neither achieves clarity. The strategy fails not because it was irrational in isolation but because it was incomplete in context.
This dynamic is illustrated with brutal clarity in the conflict between Russia and Ukraine. The initial assumption driving the invasion reflected the ultimate Maximax scenario: a rapid military advance, limited resistance, swift political decapitation, and a paralysed international response (Freedman, 2022).
Instead, the system responded.
Ukraine resisted with adaptive capability. External actors intervened. Sanctions reshaped global economic flows. What was expected to be a short campaign became a prolonged and costly conflict. The strategy did not fail because of execution. It failed because the system refused to behave as assumed.
What emerged instead was a strategic equilibrium where neither side could significantly improve its position unilaterally, yet neither could exit without cost. The original objectives dissolved under the pressure of interaction.
The Tariff Game: A Maximax Case Study in Real Time
There is no cleaner illustration of Maximax thinking in the current global environment than the escalating tariff architecture being constructed by the United States.
The strategic logic, on its surface, appears straightforward. Apply sufficient economic pressure, signal dominance, and trading partners will recalibrate their terms. The assumption is that leverage is unilateral – that the party applying pressure controls the outcome.
But that assumption has already collapsed.
China did not concede. It retaliated with precision, targeting sectors and geographies where the political cost to Washington would be highest (Krugman, 2018). It accelerated its push for self-sufficiency in critical technologies, reducing long-term dependency rather than negotiating short-term relief. It deepened trade relationships with alternative partners, quietly restructuring the global economic architecture that American leverage depended upon.
The system did not yield. It adapted – and in adapting, it began to render the original leverage obsolete.
Meanwhile, the collateral responses were never modelled. Allied nations, caught in the crossfire, began quietly hedging. Supply chains that had anchored themselves to American-led frameworks started diversifying. The dollar’s role as the unquestioned foundation of global trade came under a level of scrutiny it had not faced in decades.
This is the hidden cost of maximax thinking at a systemic level. The damage is not always visible in the immediate exchange. It accumulates in the architecture of trust, dependency, and alignment that underpins the entire game. By the time it becomes measurable, it is already structural.
The tariff strategy may yet produce tactical concessions. Individual agreements may be signed. Numbers may be announced.
But the strategic question is never what was agreed on the day. It is what the system looks like five years later – and whether the position of the player who initiated the game has strengthened or quietly eroded.
In a Maximax world, that question is never asked. In a Nash world, it is the only question that matters.
The Domestic Battlefields: Gerrymandering and the Spiral of Escalation
The illusion of unilateral control is equally evident in domestic political systems. The aggressive pursuit of gerrymandering in the United States assumed that structural advantage could be mathematically locked in. Electoral maps could be redrawn, outcomes engineered, and the opposition constrained (McGann et al., 2016).
That assumption has now collapsed.
Redistricting has been deployed not merely as a defensive adjustment but as a deliberate act of retaliation. Previously secure positions have been targeted, and the system has shifted from optimisation to escalation.
Each move invites a countermove. Each attempt to secure unilateral advantage accelerates the cycle. The system evolves into an iterated non-cooperative game in which retaliation becomes the dominant strategy (Axelrod, 1984).
In practical terms, it is an arms race.
Advantage becomes temporary. Institutional trust erodes. The system becomes structurally adversarial. The original objective – stable control – gives way to continuous contestation, where securing an advantage in one cycle simply provokes a more aggressive response in the next.
The Corporate Arena: Blindness by Design
If geopolitics reveals the failure dramatically, the corporate world reveals it repeatedly. The same cognitive trap appears across industries, business models, and decades – each time dressed in different language yet producing the same outcome.
The expansion of Uber provides a textbook example. The strategy was built on the assumption that scale and capital would overwhelm competitors. Subsidised pricing would eliminate rivals, and market dominance would follow. But competitors did not behave passively. In markets such as China, Didi Chuxing matched the escalation, supported by local regulatory alignment. Governments, unwilling to cede control of critical infrastructure, intervened in ways that fundamentally altered the competitive landscape. The result was not dominance, but sustained losses, strategic retreat, and a belated recognition that the original model had misread the nature of the game (Galloway, 2017).
The corporate obsession with hyper-efficiency provides another powerful illustration. For decades, firms optimised supply chains for cost and speed, assuming a stable global environment. This was the era of just-in-time logistics, where redundancy was viewed as inefficiency and resilience as unnecessary cost. It was a model built for a frictionless world (Freidman, 2005).
But the world was never frictionless – It only appeared so.
When that stability fractured – through pandemics, geopolitical tensions, and climate disruptions – the very optimisation that had created competitive advantage became a systemic vulnerability (Sheffi, 2005). Companies found themselves exposed, unable to absorb shocks, and forced to rebuild resilience at significant cost. They had optimised for the best-case scenario without preparing for the inevitable deviation.
The collapse of Zillow’s iBuying strategy reflects the same failure in a different form. The company assumed its proprietary algorithm could predict housing prices with sufficient accuracy to dominate real estate transactions at scale. The assumption was that data could dictate outcomes. But markets are not spreadsheets. They are interactive systems shaped by human behaviour, asymmetric information, and external shocks (Shiller, 2015).
Sellers exploited the model. Overvalued properties flowed in, while premium assets were withheld. Zillow controlled the algorithm, but not the market. The result was over $500 million in write-downs and complete withdrawal from the strategy.
Nokia presents perhaps the most instructive case of structural dominance rendered irrelevant by a system that simply refused to stand still. At its peak in the mid-2000s, Nokia controlled over 40 per cent of the global mobile handset market. Its assumption was that hardware excellence and distribution scale were sufficient to maintain dominance. Apple and Google did not compete within Nokia’s game. They changed the game entirely – shifting the value from the device to the ecosystem. Nokia’s response was too anchored in its existing model to adapt at the required pace. The market did not defeat Nokia. It simply moved on without it (Doz and Wilson, 2018).
Kodak is the definitive case of a company that saw the future clearly and still lost to it. Its engineers invented the digital camera in 1975. The technology was understood. What was not modelled was the response of a market they believed they could manage. The assumption was that the film’s decline would be gradual enough to control – that Kodak could dictate the pace of its own disruption. Instead, digital adoption accelerated beyond any internal projection, and competitors with no loyalty to the film business moved without restraint. Kodak filed for bankruptcy in 2012. It did not fail because it lacked foresight. It failed because it assumed the system would behave as modelled (Mui, 2012).
The Quibi collapse, though shorter in its arc, illustrates the same blindness in a digital context. Backed by nearly $2 billion and significant Hollywood expertise, the platform assumed that premium short-form content would dominate mobile attention. It had not modelled the ecosystem it was entering – one in which TikTok and YouTube had already made user-generated, free content the default expectation. Quibi executed its own strategy competently. It was simply playing the wrong game entirely (Kafka, 2020).
Across these examples, the failure is not one of intelligence or execution. It is a failure of framing. Leaders optimise for a static world. The real world does not comply. It responds.
The False Comfort of the Spreadsheet
What unites these failures is a deeper structural issue. Financial models, by their very nature, are Maximax tools. They show what happens when assumptions hold, when variables behave, and when the environment remains stable.
They show what happens when everything goes right. They do not show what happens when others ensure that it does not.
The spreadsheet provides clarity. It does not provide reality. True strategic foresight begins when leaders step outside the model and confront the interactive nature of the system in which they operate.
The defining characteristic of the modern era, described elsewhere as ‘The Great Compression’ (D’Souza, 2025), intensifies this challenge. Forces that were once separable – geopolitics, technology, capital markets, regulation, and social dynamics – now operate simultaneously and interact continuously.
There are no isolated decisions.
Every strategic move triggers a cascade of responses across multiple domains. A supply chain decision becomes a geopolitical issue. A technological innovation becomes a regulatory concern. A pricing strategy becomes a competitive escalation.
In this environment, the traditional question—what is our best possible outcome?—loses its relevance. The more meaningful question is what happens when the system responds.
Conclusion
“No plan survives first contact with the enemy.” – Helmuth von Moltke the Elder (1880)
The central insight of Game Theory remains absolute. You are never playing alone.
Maximax strategies endure because they are seductive. They simplify complexity, project confidence, and deliver early success. But they do so by removing the most critical variable in the strategic equation – the response of others.
And once that response begins, the game changes. Assumptions collapse. Outcomes shift. Control dissipates.
Over time, Maximax strategies invite retaliation, accelerate escalation, and reduce total system value.
To lead effectively in the modern environment requires abandoning the illusion of unilateral control. It requires moving beyond static optimisation and embracing dynamic interaction. It requires the discipline to think not only about the first move, but about the chain of responses that inevitably follows.
Because in every real system – geopolitical, political, or corporate – the outcome is the same.
You control the first move.
You do not control the game.
Dr Chris D’Souza is Deputy CEO of CMA Australia.
References
Axelrod, R. (1984) The Evolution of Cooperation, Basic Books, p. 241.
Doz, Y. and Wilson, K. (2018) Ringtone: Exploring the Rise and Fall of Nokia in Mobile Phones, Oxford University Press, p. 204.
Mui, C. (2012) ‘How Kodak Failed’, Forbes, 18 January. https://www.forbes.com
Clausewitz, C. von (1832) On War. Translated by M. Howard and P. Paret (1976). Princeton University Press, p. 174.
D’Souza, C. (2025) ‘The Great Compression: Executive Anxiety in an Age Where Everything Collides’, On Target, CMA Australia & New Zealand, https://ontarget.cmaaustralia.edu.au
Freedman, L. (2022) Ukraine and the Art of Strategy’ Oxford University Press, p. 248.
Freidman, T. L. (2005), The World Is Flat: A Brief History of the Twenty-first Century, Penguin Press, p. 672.
Galloway, S. (2017) The Four: The Hidden DNA of Amazon, Apple, Facebook and Google, Portfolio/Penguin, p. 336.
Kafka, P. (2020) ‘Quibi is shutting down’, Vox, 21 October. https://www.vox.com/recode/2020/10/21/21527394/quibi-shut-down-streaming
Krugman, P. (2018) ‘Trade wars, trade policy and the case for free trade’, The New York Times, 4 March. https://www.nytimes.com
McGann, A. J., Smith, C. A., Latner, M. and Keena, A. (2016) Gerrymandering in America: The House of Representatives, the Supreme Court, and the Future of Popular Sovereignty. Cambridge University Press, p. 261.
Nash, J. F. (1950) ‘Equilibrium Points in n-Person Games’, Proceedings of the National Academy of Sciences, 36(1), pp. 48–49.
Sheffi, Y. (2005) The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage, MIT Press, p. 352.
Shiller, R. J. (2015) Irrational Exuberance, 3rd edn. Princeton University Press, p. 312.
Von Moltke, H. (1880) Kriegsgeschichtliche Einzelschriften. Cited in Hughes, D.J. (ed.) (1993) Moltke on the Art of War: Selected Writings, Presidio Press, p. 92.