Money and Rationality: Real Cases in Backgammon Teaching

When teaching my eldest daughter how to play backgammon, I discovered an excellent case that illustrates how a player's rationality is influenced by money.

My daughter was only 8 years old at the time, but she was very opinionated and quite smart.

After practicing for a few months, she started to win against me.

Then I suggested adding money to the game—winning 1 point could exchange for 1 cent, which in this game means the maximum win or loss is 32 cents per round.

She was always able to defeat me, and I continued to raise the stakes.

When I increased the bet to 10 cents per point, she began to lose.

Then she quickly lost all the money she had won back.

Why was she able to beat me when there was no money involved and only a small amount was at stake, but started losing when the stakes increased?

Because for me, $3.2 was just pocket change.

For a child, this was a significant amount of money.

Thinking about this made her a bit nervous.

Thus, she couldn't perform at her best level.

This made it very difficult for her to win.

A trader with a very small amount of capital can become obsessed with the wins and losses of money.

This can severely impair their thinking ability, competitive state, and ability to win.