So, in addition to the obvious cost associated with the immediate demands of the terrorists, there is a hidden cost associated with getting a reputation for giving in to terrorists. That hidden cost is often huge. Thus the strategy of not giving in to terrorists.

So if Thud cooperated with some less drastic version of Fred's plan that left a future to care about, he would be causing humans to get a reputation for giving in to extortion, even if the particular extortion he was faced with would not have been prevented by the aliens knowing he probably would not have given in. This is a different argument from the backward causality UDT seems to use in this situation, and AIXI could get it right by simulating the behavior of the next extortionist.

Good idea. Thanks for posting.