Comments on: A Simulation Game: Cutting Your Losses

By: Lee Drucker

Lee Drucker — Wed, 18 Nov 2009 21:47:51 +0000

I am MBA student at NYU- and my economics professor played the exact same game yesterday- He made 39.99.

By: Desmond Pieri

Desmond Pieri — Tue, 17 Nov 2009 20:28:48 +0000

In the real world I’ve seen at least one case a few years back where the VCs put good money after bad, even when I — as interim CEO — told them, “It’d be best to cut your losses now.” Why? In this case the VC didn’t want to have to answer the question, “Why did you invest in the first place?” Because the problem that they saw now was a problem they should have seen before then ever invested. The VC chose to ignore the problem (or didn’t even see it) when they made the first investment, and now he can’t admit to either (ignoring or missing), so he plows more money in.

I guess your game does simulate this problem. Had you “figure it out” in advance — and not quickly started the bidding with $5 — you’d have decided not to invest.

I find it amazing that grown men sometimes can’t simply admit to their first mistake, so they plow forward, hoping for a good outcome when all the signs around them say, “It’d be best to cut your losses now.” Human nature, I guess.

By: Derek Pilling

Derek Pilling — Mon, 16 Nov 2009 22:48:26 +0000

Nice post Larry. The only issue is that the unabiguously “best strategy” for the game you outlined is to not play at all. You can’t get “pot-heavy” in this game and win; someone else will always outbid you.

Not the case in VC of course; you can get pot-heavy, still build a great company and have a great outcome or a meaningful recovery of capital.

The game does illustrate a point though; don’t play games you can’t win.

By: larrycheng

larrycheng — Mon, 16 Nov 2009 22:38:24 +0000

Glad to hear it Rob! Glad you liked it.

By: larrycheng

larrycheng — Mon, 16 Nov 2009 22:34:05 +0000

I’m not yet prepared to talk about what happened with Belichick. The wound is too raw. Actually, I may be one of the few that agreed with his call. But, that doesn’t mean the loss hurts any less!

By: Rob Go

Rob Go — Mon, 16 Nov 2009 21:41:56 +0000

Nice Larry, I think this is your best post so far!

By: Boston1630

Boston1630 — Mon, 16 Nov 2009 21:38:29 +0000

Could this descibe what happened to bill Belichik yesterday?

By: FiscalStudent

FiscalStudent — Mon, 16 Nov 2009 20:48:06 +0000

This is whats known as a dollar auction, first suggested by John Von Neuman. Many more interesting concepts covered in the book about him called “prisoners Dillemma”