This simplification misses key nuances. Strategies like Tit-for-Tat (TFT) are context-sensitive and not universally "optimal." Effectiveness varies with game structure, communication clarity, and the presence of noise. Moreover, the "optimal" strategy adjusts in finite games (which you didn't clarify which type of game) due to the endgame effect.
Simple hole in your simplification: one simple misunderstanding could lead to an endless cycle of defection where everyone will defect on each other: game over.
>Strategies like Tit-for-Tat (TFT) are context-sensitive and not universally "optimal."
Of course. Hence why I didn't claim it to be universally optimal. All I'm saying is that your willingness to defect against defectors should always be non-zero, just to keep the players in line who start out with a higher predisposition towards defecting.
The noisiness of the real world should probably bias us more in the direction of cooperation, to avoid a cascade of defection as you mention, but a player who only cooperates will get taken advantage of regardless of the precise details of the game. Some amount of this dynamic can be seen currently in the relationship between western companies and the Chinese state, a relationship that is currently very different from the relationship between Chinese companies and the rest of the world.
It is also generally true that the longer the game, the more defectors suffer.
Simple hole in your simplification: one simple misunderstanding could lead to an endless cycle of defection where everyone will defect on each other: game over.