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StrategyPsychology

The Peter Principle

Introduction

In this Article
  • What is the so-called "Peter Principle"?
  • How does it apply to poker?
  • Weak form of the Peter Principle

(Editor's note: Written by Matthias Wahls)

 

In economics, the so-called “Peter Principle” exists. It implies that employees of a company will be promoted until they have reached a position they are no longer able to manage. It's at this position that they usually stop climbing the hierarchy. This principle is also applicable in public service. Anybody who has ever had a disagreement with a staff member of a public authority knows exactly what I mean.

If one assumes that this principle is also valid to a greater extent in the world around us, it would lead to a rather pessimistic attitude. It would imply that the most important points of control within our society are occupied by incompetent persons. Social critics have long maintained that such is in fact the case.

I personally believe that there is some truth in this maxim, and that it could be a good starting point for various deliberations. Nonetheless, the majority of offices should be filled with competent people who haven't been yet because they a) haven't been in their position long enough yet, b) are underestimated or c) don't have an advocate amongst the leadership.

With regard to poker I see the following problems:

Players playing where they are incompetent

Consequently, they climbed up the limits until they reached a level on which they changed from a winning player to a losing player. The only correct step now would be to return to the limit which they were able to beat. But going backwards is something everybody is reluctant to do. For some, it even represents a major psychological problem. It seems that they'd rather lose money than to acknowledge their “failure”.

Rubbish! First of all, it's not really a failure when you climb up the steps rapidly and eventually meet some resistance. One cannot expect to take the elite by storm. The development of poker skills takes a lot of time. Viewed from another point, even real failure isn't disgraceful. The weighing of failure correlates with the “culture of failure”. In Germany, it often happens (IMHO) that people pour scorn on the “loser”, or that he has to endure know-it-all remarks (“I told you so!"). In the USA, on the other hand, the courage of having risked something is approved (“I respect you for your courage. Next time it'll work for sure!”).

To sum up: Failure is not a disgrace! Go back a step and calmly prepare for the next attempt!

 

Some people reduce their win rate

This is the weakened form of the Peter Principle. Let's assume you make 2 Big Bets per hour on $10/$20. Now you climb up to $15/$30 and “only” make 1 BB/h. The profitability has thus decreased. Of course, this situation is by far less serious than in the first case. Also, the real win rate can only be determined based on a great amount of hands, meaning that it could be that you have an above-average amount of bad luck immediately after your advancement.

 

Comments (6)

#1 mouse89, 06 Oct 08 14:32

ok

#2 RedAirkson, 11 Oct 08 08:49

I find this to be simply too true. Human nature seems to push us till we can no longer handle where we are. From there, it's all about the prudence and willpower to take a step back instead of being stubborn. However, this is no reason to stop pushing - merely an indicator of the balance between ability and opportunity. When ability - eventually -catches up (the learning curve is doomed to slow down the deeper we go, after all) push again...<br /> <br /> I think Jerry Seinfeld said it best when he was making a joke about Cough Syrups being marketed as "Extra Strength" and "Maximum Strength"<br /> <br /> "FIND OUT HOW MUCH IT WILL TAKE TO KILL ME, THEN BACK IT UP A LITTLE"

#3 STR82ACE, 09 Mar 09 14:47

Peter Principle is the single most factual principle in business and social settings to this very day. Its important to recognize in oneself moreso than in others though, and that's the difficult part of it.<br />

#4 usun, 11 Apr 09 20:56

Peter Principle makes sense to some extend (it's true for poker), but in general it doesn't work in hierarchical societies.

#5 nuffbluff, 22 Jan 10 09:48

i think this theory is more rampant in todays than not, just look at airport security, a spectacular e.g of the principle, ineptidude and buffunary at its' finest.

#6 nuffbluff, 22 Jan 10 09:49

"society"