Game Theory and the Two Kinds of Business

Most business advice assumes you're playing one game.

But you're almost always playing one of two:

A one-shot game: you deliver value once, the relationship ends, and you hope for a referral.

A repeated game: you deliver value in cycles, and the relationship continues until it doesn't.

That distinction sounds academic—until you realize it changes everything about how you design work, measure success, price, hire, and grow.

In Deliberate Work language, the test is simple:

Does the cycle of Engagement, Retention, Revenue, and Referral (ERRR) happen more than once inside the offering?

And here's the game theory parallel:

AAERRR is a one-shot interaction.

AA(ERRR) is an iterated (repeated) interaction.

That one shift—from one-shot to repeated—is the difference between "optimize the transaction" and "design the relationship."

The Hidden Game Inside Every Offering

Game theory's core move is simple: your outcome depends on other people's choices, and their outcome depends on yours.

In business, that's not a metaphor. It's literal:

• You choose how to deliver value (invest vs. skim).
• Customers choose how to respond (adopt vs. ignore, renew vs. churn, refer vs. stay silent).
• Competitors, partners, employees, and regulators do the same.

A Nash equilibrium is a state where no player can improve their outcome by changing strategy unilaterally. In plain English: stable behavior patterns emerge—not because everyone loves each other, but because changing alone doesn't pay.

Here's the practical connection:

In AAERRR, stability comes from execution: deliver once, deliver well, capture referral at peak satisfaction.

In AA(ERRR), stability comes from designing incentives so that continuing the relationship is rational for both sides, cycle after cycle.

That's repeated-game territory.

AAERRR: The One-Shot Game (Throughput Wins)

A roof installation runs ERRR once. A consulting project with a defined endpoint runs it once. A one-time implementation runs it once.

In a one-shot game, there's no future round to "make it right."

So you optimize for:

• Throughput (how quickly and reliably work moves through the value stream)
• Quality at delivery
• Capturing the referral at the moment of peak value

That "last mile" matters because you often don't get another chance.

This is why project-based businesses tend to be operationally focused. The game rewards finishing well. And this is why so many companies struggle when they try to accidentally behave like subscription businesses (or vice versa). The game changed, but the operating system didn't.

AA(ERRR): The Repeated Game (The Loop Wins)

A SaaS subscription runs ERRR every billing period. So do retainers, maintenance contracts, memberships, and many "ongoing service" relationships.

In recurring models, Engagement isn't just a stage—it's a container for a loop.

That's not just semantics. It changes the strategy.

Why repeated games behave differently

In a one-shot Prisoner's Dilemma, defection is the rational choice. In repeated versions, cooperation can emerge because future consequences change incentives.

The Stanford Encyclopedia of Philosophy puts it plainly: in repeated games, players can punish defection in later rounds, which can sustain cooperation—but the details matter (like uncertainty about when the game ends).

That's exactly what recurring business is:

So AA(ERRR) offerings must be optimized for the loop, not the handoff.

The Customer Relationship Is a Prisoner's Dilemma (Whether You Like It or Not)

Let's name the awkward truth: many recurring businesses accidentally create a Prisoner's Dilemma with their customers.

Each cycle, both sides face temptation:

Mutual cooperation looks like: Company delivers real value and surfaces it. Customer uses it, renews, and refers.

Mutual defection looks like: Company hides behind "features" while shipping low outcomes. Customer disengages, churns, and tells nobody.

This is why "Retention" can't be passive. In the loop, retention is the deliberate act of communicating value delivered—so the renewal decision remains rational.

And this is why, in the ERRR loop, Revenue is a renewal decision, not just a transaction.

What Great Recurring Businesses Do (Game Theory Edition)

Repeated-game theory doesn't say "be nice." It says: design incentives so cooperation is stable.

Here's what that looks like—straight out of the game theory playbook.

Don't Classify the Business. Classify the Offering.

This is where many operators get stuck: they try to label the company instead of the offering.

But companies can run both games at once:

Same brand. Same customer. Two different games. Two different operating systems.

And the classification follows the designed work, not the pricing model, the contract term, or customer behavior.

Why This Matters: The Game Determines the System

Classification isn't an academic exercise. It determines what you build.

AAERRR offerings need systems that maximize completion: milestones, handoffs, quality gates, and a clear definition of "done."

AA(ERRR) offerings need systems that optimize continuity: value delivery + value recognition + renewal mechanics + repeatable referral moments.

If you use the wrong system, you get predictable pain:

These aren't mysteries. They're symptoms of playing a repeated game with a one-shot operating system.

A Practical Way to Apply This

Take any offering you deliver and answer three questions:

If you can't answer these clearly, your offering isn't "bad." It's just underspecified as a game.

Final Thought

In recurring revenue, the real work isn't in the funnel. It's in the loop.

Game theory gives you a clean way to see why:

One-shot businesses win by finishing well.
Repeated-game businesses win by making cooperation stable.