Every day I get a free inspirational quote from some famous writer or philosopher delivered to my email. It usually has nothing to do with business, and is a welcome intellectual reprieve from the daily economic grind.

Balzac vs. Drucker: Courage or Crime?

Today’s quote, however, was about business, and got me thinking. Here is the quote:
“Whenever you see a successful business, someone once made a courageous decision.” – Peter Drucker

Of course, given my inherent cynicism, I immediately counteracted this lesson from Drucker with that offered by the novelist Balzac:
“Behind every great fortune lies a great crime.”

A Lesson of Game Theory: It Pays to Defect

So what is the secret of success, courage or crime? After recently brushing up on my Game Theory with the book: The Art of Strategy: A Game Theorist’s Guide to Success in Business and Life, I’d have to say that if its money your after, the secret to success must be the courage to commit a crime.

It seems clear, from a simplistic standpoint, that we are all better off on the whole for cooperating, and much worse off when we all defect (or cheat). However, each individual, in most business circumstances at least, is much better if he alone defects (i.e. cheats), and everyone else remains honest, i.e. cooperates. Of course, if you plan to cheat, you had better have alot of courage. It’s quite possible that the other party will detect your deceit, and refuse to continuing cooperating. At which point, everyone, including you, will lose big.

So you see the secret of successful business is to feign cooperation, and at the same time have the courage to defect/cheat. In that way, you secure yourself the biggest pay off. Despite the unpalatable result, there really is no other rational way of looking at the circumstances, as far as I can tell.

Buffet’s Investment Secret: Convince Others to Buy and Hold

You see this type of feigned cooperation, and secret defection, in investing all the time. The same people who extol the virtues of buy and hold, are trading like maniacs. More specifically, you have someone like Buffett warning against the dangers of derivatives (a short-term trading tool), and then generating humongous profits for his company Berkshire, from trading derivatives. So what is the truth? Does buy and hold work or does trading work? Should derivatives be banned or should they be used by financial companies to generate mythical profits?

The answer of course, as Buffett, learned a long time ago, is that the best way to profit is to convince everyone else to buy and hold (cooperate), while you busy yourself with trading against the cooperative trend (defect). That way when the shit hits the fan, you alone have liquidity to buy all the cooperators out.

Note: Of course the situation above, is obviously reprehensible to anyone, like myself, with any basic moral sense. This is why a society, like ours, which is so driven by material acquisition, must have strict rules in effect to promote cooperation, rather than defection. A problem arises, however, when the people making the rules are also animated by greed themselves, so that the social laws become part of the game of fake cooperation and hidden defection. It’s not clear to me how we as a society can escape from this dilemma. On an individual level, I guess, we are best served, for our own interests, in devising our own set of rules to promote cooperation. This will help us control our greed, and work for the good of society, rather than pursue our own selfish motives.