Why 99% of the Analogies Between Business and Poker are Wrong
The internet and even bookstores are littered with analogies between business and poker. I’m getting sick of seeing them so I’d like to discuss why 99% of these analogies are wrong.
The ultimate goal of a business is to earn a profit. This is true in poker but you need to understand how this happens. In poker, the theory of reciprocity is what allows players to make money. Basically, it states that over time, a player will see every hand in every position. If you make the same decision as your opponent in a given situation, neither player will earn a profit. IMHO, this is a better way to state the Fundamental Theorem of Poker. This type of reciprocity does not exist in business. Over time, market participants will not see the same opportunities in the same situations. Businesses earn profits differently than a play would in poker.
Poker is a struggle for the blinds. Whether it is an ante game or small blind/big blind game, players are competing to win that money. A game without blinds would be boring. There would be no action because each player would wait until they were dealt the best starting hand and move “all in.” Business is similar to poker in the sense that you are committing inputs to earn money. Let’s simplify and discuss the capital input. Competitors are not trying to “win” the money a business spends. Instead they are competing for market share.
The concepts presented above bring us to the most popular poker analogies: bluffing and folding. In business you can’t bluff. If you have bad cards you have to fold. A lot of people will argue that a company with poor cards can restructure and change markets. That’s true and I will talk more about this point later on in this post. But this doesn’t change the fact that you can’t win if you don’t have a hand. A company can only be successful if they are playing the top of their hand range. In poker, a player needs to play a wide range of hands in order to be successful. There are many times where bluffing (especially when you are unsuccessful) can increase your statistical expectancy. Good luck finding an example of this in business.
Although just about every analogy fails, the three most important things a poker player can control holds true in business. In poker, I get to choose which game I play, for how long, and what psychological state I am in for that period. If I choose a game with players who are better than me, I am going to be a long run loser. If a positive expected value game’s player balance changes in a fashion that causes me to become a loser, I can leave that game. I can also control my morale which will affect how well I play. The same is true for business. You get to pick which market you enter and at what time, how long you are in that market, and the morale within the company. All of these factors need to be periodically reevaluated if you want to have a long run positive statistical expectancy.
The way poker players earn a profit and use inputs fundamentally changes the way they operate compared to businesses. It is these two concepts that cause almost every analogy between business and poker to fail.
