I’ve long considered backgammon one of my greatest teachers in risk management. The game, deceptively simple on the surface, serves as a powerful metaphor for managing risk in life’s pursuits..
Backgammon’s rules are straightforward, but success requires a deep understanding of probability, risk, and strategic positioning. While probabilistic knowledge is essential—what I’d call "game table stakes"—long-term success demands more. Winning consistently requires mastering hedging, risk-of-ruin management, and emotional discipline—the ability to control greed, fear, and pride.
The best players recognize when to accept small losses to protect against total ruin and maximize match winnings. As Nassim Taleb wisely notes:
“One may be risk loving yet completely adverse to ruin.”
This principle applies not just to backgammon but to investing, entrepreneurship, and decision-making in uncertain environments.
Backgammon and the Science of Ergodicity
Backgammon reveals a crucial distinction between ergodic and non-ergodic systems, a physics concept that has profound implications for decision-making and risk management.
Ergodicity: The Law of Large Numbers
In an ergodic system, long-term probabilities define expected outcomes. No matter where one starts, if given enough time and repetitions, the system will naturally explore all possible states, and a player’s overall performance will reflect their skill level.
Many casino games, such as roulette or blackjack (without betting limits), exhibit ergodic properties because each round is independent. Even if a player experiences short-term losses, playing a perfect strategy over time should yield the mathematically expected long-term results.
If backgammon were purely ergodic, a player who follows an optimal strategy would always outperform an unskilled player over time. The law of large numbers would guarantee that superior decision-making would eventually translate into superior results.
Non-Ergodicity: The Risk of Ruin
A non-ergodic system, by contrast, does not guarantee that players will reach every possible state or that losses will naturally balance out in the long run. In such a system, early failures can permanently eliminate a player from the game. This is known as an absorbing state—once ruin occurs, there is no coming back.
Backgammon, like life, is not purely ergodic. Even if you play flawlessly, there is no guarantee that probability will work in your favor within the finite number of games you play. A single sequence of bad dice rolls at a critical moment can lead to irreversible losses, just as an investor might suffer financial ruin despite making statistically sound decisions.
Backgammon as a Blend of Ergodic and Non-Ergodic Systems
Backgammon contains elements of both ergodic and non-ergodic systems, making it an ideal game for understanding real-world risk:
Ergodic Aspects
Over many matches, a skilled player will win more than an unskilled player because probabilities play out in their favor over time.
The law of large numbers suggests that the more games played, the more closely results will align with their expected probabilities.
Good strategic choices compound over multiple matches, reinforcing skill advantages.
Non-Ergodic Aspects
Risk of Ruin: A single catastrophic event can erase progress. A well-played match can still end in disaster if the opponent rolls perfectly at the right time.
Finite Lifespan of a Match: Unlike a pure ergodic system, where long-term play guarantees an eventual return to an expected outcome, a single backgammon match has a fixed endpoint. If bad luck hits at a crucial moment, the game is over—there are no infinite retries to average out the probability.
Compounding Effects: Small early disadvantages can snowball into overwhelming positional disadvantages, limiting the ability to mount a comeback. This is akin to wealth inequality in economic systems, where initial disadvantages tend to compound over time.
Doubling Cube Dynamics: The introduction of the doubling cube forces players to make risk-reward calculations with irreversible consequences. Accepting a double at the wrong time can lead to greater losses, illustrating the irreversibility inherent in non-ergodic systems.
Why This Matters for Risk Management
Understanding relative ergodicity in backgammon teaches us an essential lesson about decision-making under uncertainty:
Risk Management – Since backgammon contains non-ergodic elements, avoiding ruin is more important than maximizing short-term gains.
Adaptability – Unlike a purely ergodic system, where rigidly sticking to an optimal strategy is always correct, real-world success requires adapting to circumstances—knowing when to hedge, when to play aggressively, and when to cut losses.
Long-Term Thinking – To win over time, a backgammon player (or investor, entrepreneur, or strategist) must recognize that individual game outcomes are subject to variance, but a solid, risk-aware strategy leads to success across multiple matches.
Key Backgammon Heuristics for Risk Management
Below are several strategic heuristics, adapted from Bilal Bach’s insights, that apply not just to backgammon but also to broader decision-making:
Hedging vs. Advancing – Should I secure a position in my opponent’s territory for protection, or use my dice roll to push forward aggressively?
Calculated Vulnerability – When is it worth opening a position, accepting short-term risk for long-term gain?
Risk Mitigation – When forced into vulnerability, how do I choose the least damaging option?
Timing & Fortification – When should I strengthen my position instead of spreading out?
Strategic Risk Aversion – When is it wiser to consolidate rather than chase new opportunities?
Baiting the Opponent – As Taleb puts it, “It is a very powerful manipulation to let others win the small battles.”
Probability of Ruin – Understanding that a single blot can reset your progress mirrors financial risks where losing 50% requires a 100% gain to recover.
Opportunity Utilization – Recognizing and capitalizing on good luck when it presents itself.
Avoiding Concave Risk – Knowing when to walk away from seemingly lucrative opportunities where the downside risk outweighs the upside.
Delaying Profit-Taking – Just as in investing, sometimes delaying checker removal can reduce the risk of a costly reversal.
The Last Word on Risk and Randomness
No matter how skilled I think I am, backgammon is a humbling game. A beginner could still beat me in a single round. Taleb’s words capture this reality perfectly:
“No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word.”
And yet, the best players embrace both probabilistic reasoning and intuitive insight. Einstein famously said:
"The intuitive mind is a sacred gift, and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift."
Backgammon teaches that both are essential: the rational mind for probability, the intuitive mind for long-term strategy. The same applies to risk management in life and business.
Conclusion
In a purely ergodic world, skill and probability would always dictate eventual success. But in real-world systems like backgammon, finance, entrepreneurship, and life, failure is often an absorbing state—meaning that those who don’t manage risk effectively may never get another chance to recover.
Thus, the game teaches us one of the most valuable lessons in risk management: Play to win, but—more importantly—play to survive.
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