Identify the opportunity.

Imagine you and I freely decide to play Rock–paper–scissors for a dollar. We count: one, two, three! and both throw rock. Tie.

We play a second round. This time paper is our choice; tied again… Imagine this carries on forever. Every game is a tie – and no one wins because neither of us is behaving differently.

Suppose instead of a tie, every time I choose paper you choose scissors – but the reverse is also true. When you play paper I also play scissors. It follows that in the remaining option we both play rock. Certainly something has changed. It appears at first glance that our behavior is now different, but it is not. We’re still behaving the same way when confronted with the same opportunity. Play paper? Get scissors. We would simply hand 1 dollar back and forth whenever paper is played.

Imagine now we randomized our choices. Surely here our behavior is different, no? For a while it might even appear that one of us is winning. By chance alone you might find yourself ahead several dollars. In due time I would catch up and perhaps even find myself ahead, by chance alone. By now you will see we have once again decided to behave the same way when confronted with the same opportunity. The game has no skill. So our opportunity isn’t what to choose but whether to play.

If my goal is to make money in a free society and I have the option to play a game with no skill, the only way to win is not to play. To generate a competitive advantage I have to look elsewhere.

On Competitive Advantage – Part 2