Gambler's Ruin

Even the most talented general will find it difficult to defeat an opponent twice his strength.

Carl von Clausewitz, On War

The major hurdle that Contenders face is the fact that, by definition, they're playing from a weaker position than Commanders. Each move or deal they propose carries a disproportionately higher risk for them compared to the Commanders by virtue of the size differential between them. A failed deal can be disastrous for a Contender. For a Commander, the other hand, it's just another transaction that they move on from without a second thought.

You can see how this works at a fundamental level by using Gambler's Ruin, an idea from probability that highlights the dangers of gambling against an opponent with much greater resources.

At a general level, Gambler's Ruin can be represented by a situation where a gambler with a small amount of money (let's say it's $1,000) sits down to gamble in a house game (blackjack, roulette, etc.) at a casino in Macau. These casinos are multi-billion dollar enterprises and the house games they offer all have "house edge" built into them.

Bad gamblers tend to rely on luck, which is a guaranteed disaster in this situation. The only way to win is by walking in with some kind of edge that supersedes the house edge. But if there isn't an edge to be exploited (or not a big enough edge) and they decide to play, the gambler will run out of money at some point. The house always wins in these scenarios.

Playing Poker

House games are one way to think about it, but an edge in those cases usually means some kind of cheating (spying on dealer cards, rigging slot machines, etc.) or advantage play (counting cards in blackjack, for example). But these edges tend to either be too small to matter, or vanish once the casino figures out what's going on.

Poker, where edges are far more likely to be skill-based, offers us a more accurate view of how Gambler's Ruin works in Valuation Games.

If you play poker against someone with a much bigger bankroll than you, you need to be strictly superior to them in terms of skill in order to win. A bad player with a big chip stack might still win (we're dealing with probabilities, after all), but if they're around the same skill level or better, they'll end up with your chips pretty almost every time.

This is because the player with more chips can afford to take risks and push you into hard decision-making situations without a problem. They can press you with big, aggressive bets at will, and you have to either fold or commit significant amounts of your stack to play. Even if the other player loses, it's not a big deal since your all-in is so much smaller than their overall stack.

Bum Hunting

Your only sustainable pathway to victory here is to ensure your opponents are worse than you. The simplest, most effective way to do this is to actively seek out and exploit weaker opponents. This practice is sometimes called table selection in more polite circles, but it's most often referred to as bum hunting.

Good poker players try to test themselves in tournaments and in live games where they know where they'll go up against the top competition. But the most profitable players think in the opposite terms: they want the worst opponents with the biggest bankrolls. In other words, they want rich "bums" who have far more resources so they can take it from them via their superior skill.

The ideal "bum" is someone who is rich, foolish and loves to take big risks. A skilled player who recognizes these features in a player will reel them in and take them for all they're worth. There are even professional poker "crews" who troll around in bars and poker rooms looking for these characters. Once one is spotted, they're invited to a home game and summarily fleeced, often through the use of outright cheating.

Bottom line: Sharp poker players are always on the lookout for people who have more money than them, but only if they're inferior players. They know that's the edge they need to win and avoid a Gambler's Ruin-type scenario, no matter how big the other person's bankroll is.

Targeting Commanders

In Valuation Games, Contenders are at a similar disadvantage. They face Commanders who have the luxury of patience and the ability to absorb losses without significant impact. This is a big part of the reason Commanders take their time when evaluating investments: someone whose financial clock is ticking can't afford to wait around, so it's an easy way to smoke out pretenders.

At a slightly darker level, some Commanders recognize opportunities to bleed smaller players in these situations. If there are clear signs a Contender is suffering financially but holds the keys to a potentially valuable asset, Commanders may wait until they're desperate enough to sell at a deep discount.

Knowing all this, skilled Contenders are always engaged in their own version of bum hunting. They know it's not in their best interest to seek out the most sophisticated, well-resourced Commanders to play Valuation Games with. This is even more of a problem if the assets they want to sell are not high-quality.

Just like in a poker game, the ideal Commander in the minds of Contenders the world over is rich, stupid and willing to take big risks. These are the characters Contenders seek out more than anything else, at least until they have assets to sell that are objectively valuable.

When Commanders get duped, it's often not because they're stupid, but because Contenders have discovered some other weakness that leaves them vulnerable to this Valuation Game dynamic. In particular, Contenders who are part of hot new trends that Commanders want to get in on, they risk being taken advantage of. As such, Commanders need to be particularly cautious whenever a deal fits their ideal profile.