Spend $40 to chase a $1 return: Why are the smarter and more hardworking individuals more likely to be exploited by the rules?
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Editor's Note: Smart people often lose by working twice as hard. Seeing through the benefit mechanisms and rule traps, and knowing when to walk away, is far more valuable than clinging to a dead end that is doomed to losses. This article is translated from foreign content.
Smart people often find it hard to win.
They overanalyze and overthink everything. You may have noticed that too? This means they often get stuck in financial trouble and struggle to easily achieve the financial freedom they pursue.
Worse still, to make a financial breakthrough, smart people often choose to redouble their efforts at work. But this only makes their losses snowball bigger and bigger. Over the past 12 years, I have interacted with many smart people online, and it is really distressing to watch this scene play out.
But this never had to happen.
Game theory reveals the root cause behind this dilemma. And once you grasp the power of game theory, no matter how high your IQ is, your way of thinking and path of action will be completely transformed.
The following is how to use game theory to win more in life.
Why Smart People Will Spend $40 to Grab a $1 Bill
Economist Martin Shubik ran a peculiar experiment in 1971.
He decided to auction off a $1 bill. This trick was extremely sharp. There was only one rule: the highest bidder wins the dollar, but the second-highest bidder also has to pay the final amount they called out, and gets nothing in return.
The result was thought-provoking.
When the auction started, a smart guy bid 5 cents. The next clever person called 10 cents and successfully took first place. But once you fall into second place, the underlying mathematical logic quietly changes — you are no longer bidding to win that dollar, you are bidding to avoid losing both your money and the reward, paying for nothing.
The logical next step is naturally to raise the bid to retake first place. The other party thinks the same way. Every price increase seems rational, a stress response to the immediate loss at hand.
Martin watched this group of smart people push the bid all the way up to $40, just to get that $1 bill.
These people are not stupid. They are just drawn into a carefully designed setup, taking seemingly reasonable steps step by step until they get stuck in an irreversible quagmire.
In this game, the person who tries the hardest, refuses to admit defeat the most, persists the longest, and raises the price the most fiercely ends up losing the most. They are participating in a dead end that is doomed to loss, and no matter how smart they are, there is no escape.
Professor Gordon Tullock named this phenomenon: Rent-seeking.
It refers to the fact that people keep investing real resources — time, money, effort, even years of their lives — to compete for a certain reward, and the total cost of chasing it far exceeds the value of the reward itself. Everyone is doing their best, and everyone is acting rationally.
But combined, everyone loses far more than they could ever win.
The "$1 Auction" is not a story where the lazy lose to the hardworking. On the contrary: the harder you work, the worse you lose. Once you see through this pattern, you will find that it is everywhere in places involving interests and money.
Two families keep hyping themselves up in a house bidding war, until both break through their own affordability limits.
In the arms race of academic qualification involution, everyone is pursuing higher diplomas, which leads to high academic qualifications being completely devalued, while heavy debt follows closely.
Two companies fight a price war and keep cutting prices, until both go bankrupt and liquidate.
In a company where everyone works 60 hours a week, the only reward for meeting performance targets is being assigned a higher target.
For that glamorous position at Google, there are 40 other equally excellent candidates eyeing the spot.
In all the scenarios above, working hard is by no means your advantage. Instead, it becomes the nourishment that the game rules rely on to harvest you. This is why smart and hardworking people often stay stuck in place, and it is actually not contradictory at all once you see through it:
In an unfair dead end where the rules are manipulated, all your efforts will be completely swallowed up by the setup itself.
In the $1 auction, you can be the top bidder; but precisely because you are the top bidder, you end up losing a full $40. The thing that can truly protect your wealth is definitely not doing the same thing as everyone else and working twice as hard, but a completely different skill: examining the game before you get drawn in, seeing through its operating mechanism, and then walking away decisively.
This is a cognitive reshaping that makes you feel stuck but you have to face it.
We are taught from childhood to admire smart people who work harder. However, in a game full of traps, the harder you work, the more it shows you have not seen through the rules. A truly high-level, extremely rare choice is to look at the smile on the auctioneer's face, figure out the final outcome of this game, and then put down your raised hand completely.
Working harder is never the antidote. That $1 bill is never the point — you, being manipulated, are.
This auction story also sums up the nature of most business opportunities and traditional workplaces. That is why that famous quote is so incisive: "Even if you win the rat race, you are still a rat." Before you enter the game, you must figure out exactly what game you are playing, and understand the incentive mechanism behind it. Otherwise, you will only end up as a bankrupt rat, chasing the cheese hanging on the fishhook like a big fool.
Participate in a stupid bet, and you will only reap stupid consequences.
The Man Who Won the Nobel Prize by Observing Traffic Jams
William Vickrey won the Nobel Prize in Economics in 1996.
Only three days after the award announcement, he passed away.
Most of his career was spent studying an extremely common and boring problem, so much so that most people never even regarded it as an academic topic — traffic congestion.
William's core insight is that everyone stuck in traffic has done nothing wrong. Every driver on the road at 8:15 a.m. has made a reasonable choice — because they have to get to the office by 9 a.m.
Roads are public and free. Under their respective objective constraints, leaving at 8:15 a.m. is the most rational choice. Precisely because it is the rational choice, everyone makes the same decision. The result is a huge traffic jam that no one wants to cause, but no one can escape.
This is exactly the most thought-provoking point: traffic jams do not happen because someone is not working hard enough, but the efforts made by everyone, at the same reasonable time, pointing to the same reasonable logical direction, add up to an inevitable result.
And when you try to "break through" in the morning rush hour full of office workers, things get even more interesting.
You choose to leave home earlier. That's smart. At first it works — until enough people think of the same thing, the morning rush hour moves earlier, and swallows you again. You figure out the back streets, the shortcuts, and calculate the traffic light cycles.
However, everyone with a navigation app has also figured these out, and the shortcuts are soon packed so full that they move as slowly as the main road you left.
You drive more aggressively, constantly changing lanes and cutting in front of other cars. In the end, you arrive at exactly the same time, but you are much more exhausted. Every trick you use to beat the traffic will be copied by others, and the congestion will re-form quietly around you. You cannot beat the traffic by sheer effort, because the traffic jam itself is made up of countless efforts exactly like yours (the workplace is the same).
The real solution William gave is definitely not to advise drivers to work harder or get up earlier. That's stupid. He knows that no small smart move at the individual level can solve this problem, because the problem is rooted in the entire structural system, not the drivers themselves.
His solution is: Congestion Pricing.
Changing the cost of traveling during peak hours can completely subvert the logic of everyone participating in the game. Once the structure changes, behavior will change accordingly; if you just keep telling people to work harder, the status quo will never change.
It took decades for major cities to listen to this suggestion. For most of William's life, the roads he studied proved a reality that had a solution, but no one was willing to adopt it.
Most of the financial advice on the market is essentially just telling people to "leave for work earlier".
Quit drinking coffee, work overtime like crazy, take more side hustles, pursue perfection, be highly self-disciplined, and grind relentlessly. These methods do bring small improvements, just like leaving 10 minutes earlier — until the system rules harvest that tiny gain completely again.
In an unfair dead end where the rules are manipulated, all your efforts will be completely swallowed up by the setup itself.
The person who can win in congestion is never the driver who drives the hardest, but the one who keenly realizes that "congestion is a rule-driven game" — he will ask if there is another route, another time period, another job, or even a completely different game, where he puts in the same effort but does not get ruthlessly backlashed by the structure that creates congestion.
The highest level of skill is definitely not to rush harder on the road, but to see the full picture of the road, and understand exactly what the big game you are in is all about.
Money Is The Ultimate Hidden Game
Game theory proves: pulling back to get a macro, bird's-eye view is the source of all wisdom.
Let me give you a practical example: money. Money is essentially a product, a tool used to divide labor, time and resources.
Yet most people have never analyzed what money really is — how it is created, where it comes from, and how a small number of people use the rules of the money game to harvest others.
Years ago, I discovered a loophole in this "matrix system" of money.
I understood the nature of excessive money supply, and wanted to use game theory to gain more wealth from it. I will not go into the boring details here. The core logic is that modern money is no different from the chips in the Monopoly game. In Monopoly, when the bank runs out of cash, players trade directly with IOUs. The same is true in real life.
Money is just a string of 0s and 1s on a screen, and a small number of powerful people and institutions have the privilege of printing money out of thin air. Unless you see through this game, the money you earn hard will keep shrinking and depreciating like melting ice.
Around that time, I heard an expert say: "The so-called 'inflation' is just a euphemism to cover up how much your money is devalued every year."
The truth of this money game completely overturned my perception.
I realized that just as driving faster blindly cannot solve traffic jams, simply earning more money is not enough. I have to outrun the rate at which my assets are diluted and devalued.
This made me realize that the prices of everything in the world are distorted. Did my house appreciate by $200,000 in two years, or did the extra man-made money printed out of thin air make it look like it appreciated?
The first step for smart people to solve financial problems is to see the underlying mechanism of the money game, and how currency is devalued step by step.
The First Core Element That Dominates All Games In Life
It is the interest mechanism that drives the world to run.
See through the interest demands, and you can accurately predict the outcome.
* Lawyers always want to revise one more version of the contract (after all, they charge $500 per hour)
* Agents always hope to close a barely satisfactory deal (the 2% commission means that fighting for an extra $20,000 for you is not worth the extra time and energy they spend)
* Wealth managers will always strongly recommend the investment plan that earns them the most — usually a larger underlying asset (because their income is linked to assets under management plus extra transaction commissions, not actual return performance)
"Never ask a barber if you need a haircut." — Warren Buffett
— Andrew Wilkinson
The vast majority of smart people spend their entire lives asking others for advice, and those who give advice are driven by their own hidden interests, which means the answers are biased and do not serve the best interests of the person asking the question at all. That's why you have to: 1) figure out the other party's interest motivation before asking for advice; 2) go and do experiments in person to verify; 3) go and try things yourself and bear the cost of being rejected.
Cleverly Align With The Vested Interests Of The Game And Find Your Best Niche
I have been writing online for 12 years. During this period, I have seen many people being toyed with by the established rules. Let me give you an example.
Years ago, I wrote on a website called Medium. They charged readers a $5 monthly subscription fee and distributed the money to platform creators based on reading volume.
I figured out how this game worked very early. I wrote viral content and distributed it as widely as possible across the whole network; I got my articles featured by all the top columns on Medium, using their huge readership to drive traffic to me, instead of relying only on my own efforts.
At my peak, I earned as much as $70,000 a month.
To get the exact right position in this game, I also got along very well with Medium's internal employees. I supported their initiatives, had frequent calls with them, and did not hesitate to align closely with them.
This made everything go smoothly. I got to peek into the inner mechanism of the platform, understand the real thoughts of the rule makers, and detect opportunities in advance before major changes happen.
At that time, I really thought I was a reincarnation of Einstein.
But when the platform was at its peak, I felt uneasy. I noticed the tide was turning — the management team's mentality started to swell and get out of control. They publicly stated that the company's top priority was no longer generating revenue, but promoting extreme social justice issues.
I also noticed that they hired a large number of traditional old media people, and applied a bunch of tricks that simply did not work in the internet industry. They even launched publications in the style of The New York Times, which ended up in total failure.
The last straw that broke the camel's back was when I saw the platform executives starting to dictate what creators should write.
They were basically roaring at creators: "You are all stupid, only we know what's best for you. Just do as you are told."
Because I knew game theory well, I saw through their trick at once. I saw clearly who the new rules they set were transferring benefits to. I watched them transform from a commercial company into a weird, obscure, self-proclaimed highbrow niche magazine with "high IQ but very low pay".
They were even arrogant enough to openly disparage the platform I am writing on right now.
I decided to withdraw immediately when I saw the situation. In 2021, I moved to this platform to hedge risks. At that time everyone said I was crazy, but I knew very well that the laws of game theory would take effect.
Sure enough.
That platform has become completely insignificant. From Gary Vee to Tim Ferriss, all top creators stopped updating and left. I don't resent Medium, they tried their best; but they ignored the true builders of the platform, and ended up paying a painful price.
It's really distressing.
After leaving Medium, I earned millions of dollars elsewhere (this is not bragging). My audience size exploded; compared to the broad opportunities I unlocked by starting a new game, the tiny profits I made on Medium before were not worth mentioning at all.
The level of your understanding of game theory is enough to determine the success or failure of your entire life.
As long as you see through the setup you are in, understand how the incentive mechanism works, even if you don't have extraordinary IQ, you can stand firm at the forefront of every innovation and opportunity. This is the real secret to achieving wealth leapfrogging.
The key to winning a game is not to master the obvious rules on the surface, but to see the hidden interests that drive all players.
— @alexeixbt