Why extortion is a hard game to master

In March 1959, a promising young Harvard economist delivered a lecture in Boston on “The Theory and Practice of Blackmail”, drawing on the then-young branch of economics and mathematics called “game theory”. Strictly speaking, his subject wasn’t just blackmail – the threat to reveal damaging information in order to get what you want – but the broader practice of extortion or coercion.

The lecturer emphasised a central problem in coercion, which is to make the victim believe that if he or she refuses to be coerced, the threat will be carried out anyway. That is not straightforward, but it is possible. For instance, in December 1958, a “little old lady” walked into a bank, placed a glass of colourless liquid on the counter and passed a note to the teller.

“I have acid in a glass, and if you don’t give me what I want I’ll splash it on you,” said the note. It continued, “I have two men in here. I’ll throw the acid in your face and somebody will get shot. Hurry. Put all the fives, tens and twenties in this bag.”

What would you have done in the teller’s shoes? A quick-thinking teller might well have thought that it was safe to refuse, because the lady’s best option would then be to pick up the glass and walk out in search of another bank. She would have nothing to gain from hurling the acid except a longer prison sentence. Yet the teller handed over a bag full of money. It was, after all, not his. 

The rest of this column can be read here. Please post comments below.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
Comment: To comment, please register with FT.com, which you can do for free here. Please also read our comments policy here.
Contact: Tim's contact address is: economist@ft.com
Time: UK time is shown on posts.
Follow: A link to the blog's RSS feeds is at the top of the page.
Follow on Twitter
FT blogs: See the full range of the FT's blogs here.