What Games Can’t Teach You About Investing

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What Games Can't Teach You About Investing

Every game can teach you something, from simple arithmetic to long-term planning or careful resource management. Many of these lessons are easily applied to economics and personal finance. We have found helpful advice in classics like chess, modern board games like Settlers of Catan, and even the flash-in-the-pan Facebook game Farmville.

Many people are first exposed to investing in grade school through a very simple game. Each student picks a sample portfolio and, over the course of time, they track its progress until one person is declared the winner. Unfortunately, this game teaches all the wrong lessons.

The most fundamental thing wrong with this game is that it has exactly one winner. This view is incompatible with wise investing. You do not need to have more money than everybody else to meet your financial goals. That idea is what drives people to day-trading, but chasing returns is one of the surest ways to lose money. Most active fund managers compare unfavorably to a monkey throwing darts at a random board of stocks. Investing is personal, not a competition. If you have enough money to live the life you desire, then you win. Investing is not zero-sum: if you win, so can everybody else.

All games end; they stop being relevant and you move on to something else. Real people do not have the luxury of living a life entirely divorced from their finances. In the investing game, having a definite finish line where one winner will be chosen encourages children to pick only the most volatile stocks because at any time they could rocket into first. Common sense tells us not to invest everything in highly volatile stocks because they will plummet as fast as they rise. The fact that games end and you can just start another encourages risk-taking behavior. This lets us see what works and what doesn’t, but most people do not want to start their finances over from scratch. You need to plan ahead to have the money you need when you need it.

Games define what you need to win. Life does not. Some sophisticated games allow multiple different paths to success, but ultimately, the goal is to get 10 points by any means. While we might love to have a 10-point life, maybe it’s not worth what it takes to get there. Maybe we’d be really satisfied with a 7-point life. We all want different things. If the investing game was realistic, each student would get to choose how much money counts as winning for them.

Most games force players to compete for finite resources. That is, essentially, the entire driving force behind Settlers of Catan. The stock market is so vast with so many offerings that any lessons from resource-controlling games are foolish. In some of these games, it is easier to win by depriving your opponents of a resource than focusing on gaining things yourself, but it would be foolish to try to “win” investing by buying all the Apple stock so nobody else can have any.

Mostly it comes down to this: games are wonderful tools to learn about the world, but life is too complicated to be modeled. People are too different to be modeled. Games can teach us how to react in certain, small situations, but your finances are about what you value and want out of life. A game cannot teach you whether you want to go out with a bang or live frugally to leave as much as possible to your heirs. Use what you’ve learned from games, but relax and take a longer view. Investing is about you, not anybody else. It is about whether you will have enough to pursue your desires and only about returns insofar as those help you pursue them.

Playing the real game of investing wouldn’t be very exciting because it would be mostly meaningless to compare results. The only important question is, “did you have what you wanted?” Taught well, most people would win. That makes for a bad game, but a good life.

Photo used here under Flickr Creative Commons.

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Financial Analyst

Matheson Russell is the Financial Analyst for Marotta Wealth Management. He specializes in tax laws, forms, policy, and planning. He loves complex rules systems, animals, and Koine Greek. His favorite stories are The Jungle Books.