The idea to take a new perspective on games and consequently on many activities implying competition was described by Charles Ellis in an essay “the Loser’s Game”. The purpose of his article however was to describe why investors can’t outperform the market.
What he took up doing with the article, was to explain how the basic premise that professional investors can beat the market had changed to become false after 1965.
Ellis based his description on the work done by Dr. Simon Ramo, Admiral Samuel Elliot Morrison, and Tommy Armour.
Ramo had investigated the game of tennis and compared how amateurs and professionals perform. When professional players compete with one another, they find out who of both is slightly better than the other. Being experts at the game, they rarely make errors. It leads to long ball exchanges making it interesting to watch them play. The winner wins because he can win more points.
It is not the same as having a higher score.
Amateurs when they win, also have a higher score than the other.
However, their game is very different. Ball exchanges will often be shorter and will most often end with an error instead of allowing for an exchange in which the opponent was beaten. When amateurs win, it usually is due to the fact, that their opponent lost more points than them.
An amateur simply is not yet good enough to overcome the basic inherent adversities of the game itself. Whereas experts have learned to deal with most of these adversities.
From this idea, Ramo developed a strategy for playing tennis that was based on a conservative way of playing. It meant to keep the ball in the game as long as possible to give the opponent the possibility to make the mistakes.
Admiral Morrison made a similar point regarding warfare. For him, mistakes are inevitable in warfare, with intelligence that “is never complete and often misleading” decisions can’t always be right. Consequently, he explained that it is the side that “makes the fewest strategic errors” that wins.
Golf is yet another loser’s game. There it was Tommy Armour who described how the person who makes the fewest bad shots wins. Playing golf means concentrating on one’s game and on sticking to one’s ability to keep the ball on course.
Over time games that have been winner’s games change to loser’s games. This can even be the case during a game.
It pays to know when the dynamic changes.
Someone who has had great success through his understanding of the loser’s game is Warren Buffet. He describes his strategy as follows:
“Risk comes from not knowing what you’re doing.”
“Rule 1 is never lose money; Rule 2 is never forget Rule 1.”
“It’s not necessary to do extraordinary things to get extraordinary results.”
Interestingly, Ellis also explained, how someone’s basic belief about the game they are in might prevail. The more people wanted to believe in the basic premise, the less his description would be taken up. It’s how people construct their reality. Whenever a concept of reality is important for someone, the more it can contribute to that person’s self-esteem and sense of inner worth to keep it alive. Or said differently, the more challenging it is to that person’s self-esteem and sense of inner worth to give up a belief on which that person’s reality relies.
