Don’t invest your money stupidly in the hopes that a bigger idiot pays you off, whether it’s in investments or poker.
One of the real gifts poker has given me is that it has been a great jumping off point to learn things from other disciplines like economics, AI, psychology and Game Theory. So here is a series of articles where I bring some of the most interesting things I have learned from other subjects outside of poker which are applicable in this game we know and love.
The Greater Fool Theory is an economic principle that asserts that investors can profit by purchasing an overvalued asset and selling it to a “greater fool” who is willing to pay an even higher price for the asset. This theory assumes that someone will always be willing to pay a higher price for an asset, regardless of how much it is overpriced.
The US housing market and Bitcoin are often cited as good examples of the Greater Fool Theory, with investors often buying either asset at overpriced prices in the hopes that the herd mentality of the market means that the prices continue to rise. Bitcoin, in particular, seems to attract people who have no appreciation or understanding of the asset itself, but buy it anyway because of its remarkable peaks and troughs.
There have been extreme examples of the Greater Fool Theory where people invest in assets they know to be scams or even Ponzi schemes (most notably the Bernie Madoff scheme), hoping that they can sell the same assets at a profit before the scam is uncovered.
Site selection – don’t be a fool
In one sense poker relies on ‘Greater Fools’ in that good players rely on less intelligent players to provide them with a profit. In fact, in poker, if you are the 9th worst player in the world, but can game select to sit with the 8 worst players, you will make money. You don’t need to be a Genius, you just need to find Greater Fools to play with.
The other area I think where Greater Fool Theory is an important concept to understand is where you choose to play poker. In finance, investors put their money into assets they don’t believe in, but hope they can persuade a greater fool to buy before the asset tanks. It could be argued that some poker players do this whenever they play on unregulated sites or in private games.
If you play on an unregulated poker room or Club app, there is a very real possibility that you will lose your funds. As we saw on Black Friday the government could close the site down or the site itself could lose your money. In a private game, there is a less-than-zero chance of being robbed or cheated.
You would be silly to play in these games, but the sort of people who play in them are probably much weaker than in the regulated games. You would be a fool to play in them, but a Greater Fool might pay you off if you do.
It’s a terrible idea to play in unregulated games even if they are profitable because there is a significant risk of multiplying by zero.
What theories from outside of poker have helped your game? Let us know in the comments.
