The Gong Show

Business and Games

Fred wrote and interesting post over the weekend about how card games emulate business decisions very well. Fred said that it didn’t surprise him that Bill Gates and Warren Buffet have reputations as very strong Bridge players, and then Fred used a few examples to show how card game decisions emulate business investing decisions (such as “sunk cost”).

Malcolm Gladwell picked up on this trend too when he wrote about the psychology of overconfidence in the New Yorker. Gladwell also pointed out the strong overlap between Bridge skills and business skills, but he was more skeptical about how the two skill sets translate:

[B]ridge involves “related items with continuous feedback.” It has rules and boundaries and situations that repeat themselves and clear patterns that develop—and when a player makes a mistake of overconfidence he or she learns of the consequences of that mistake almost immediately. In other words, it’s a game. But running an investment bank is not, in this sense, a game: it is not a closed world with a limited set of possibilities. It is an open world where one day a calamity can happen that no one had dreamed could happen, and where you can make a mistake of overconfidence and not personally feel the consequences for years and years—if at all.

I know that quote is pretty meaty, but it really gets at an interesting problem with using games as training ground for business… games are superficial proxies with rule sets that are quickly understood and clearly defined. Business is messy, with unclear (or even undefined) rules and noisy feedback loops. So, being good at cards and using those card skills in business can lead to oversimplification of problems and improperly attributed feedback.

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There’s one more important distinction between card games and business that Malcolm and Fred both don’t address: outcomes. Card games that are compared to business (most commonly Poker) are Zero Sum games. By contrast, most business decisions are Non-Zero Sum outcomes. In poker, there is a fixed set of chips, and (assuming there’s no rake) one player’s exact loss is another player’s exact gain. But in business, and investment decision can create or destroy value which is not recaptured by another participant in the economy.

Thinking about Non-Zero Sum games using a Zero Sum frame of reference is dangerous because it can cause you to be blinded by competition. Lets say you’re operating in a market where you have 3 times the revenue and customers of your nearest competitor. You might conclude that you are dominating, but if you are working in a market that did not previously exist (like VMWare in the Virtualization market) this comparison means nothing because everyone is creating new customers, not taking existing customers from each other. Competition won’t begin until the market matures. Until then, all competitors are helping each other by educating customers on previously non-existent services and helping expand the overall market for everyone.