Peter Principle in Poker

When discussing the concept of bankroll management we're usually concerned with a whole bunch of different numbers - buy-ins, big blinds, win rate, the risk of ruin etc. It seems like math is the only thing you'd ever need to determine your strategy for moving up and down in stakes. In reality, the issue is a bit more complicated. As it often happens in poker we tend to overestimate the theory and underestimate the execution.

The Peter Principle

In a hierarchy, every employee tends to rise to his level of incompetence."

This theorem formed more than four decades ago by Canadian scientists Laurence J. Peter and William Hull describes the way employees tend to advance in most of the modern work hierarchies.

Since good performance at a certain level is usually rewarded with a higher pay grade and more demanding job position, given enough time the employee will inevitably reach a step that's too high for his level of competence.

Peter Principle and Bankroll Management

While on the surface poker might seem like something that wouldn't exactly fit the description of a "modern work hierarchy" most of the bankroll management strategies can be described as a formula for advancing in stakes and the infrastructure of an average poker player is actually fairly similar to that of an office worker.

Sure there are no strict hours, no boss that you have to answer to or the office you have to commute to but you do have your home office, you're your own boss and you do spend a considerable amount of time working both on improving your game and for the profit at the tables. This is precisely why the Peter Principle is applicable to poker players. Every limit allows for a certain threshold of mistakes and while everybody can improve not everyone can become Phil Ivey.

Even if you belong to the elite group of people capable of reaching to the top of the poker ladder this process will take a considerable amount of time and since bankroll tends to increase faster than the skill level most of us will hit the wall at some point in our career.

Basing your bankroll management strategy on the arbitrary amount of buy-ins and somewhat less arbitrary risk of ruin calculations (which are bound to be imprecise given that you can never know your exact win rate) ensures that you'll hit said wall sooner rather than later. Besides, everyone has an ego and like Tommy Angelo once said:

75% of poker players think they are better than the other 75%".

Now that we know Peter Principle is relevant for poker players let's discuss how to combat it. First of all, while it's important to have a solid bankroll management strategy template with the number of buy-in's necessary for playing at certain limits we should put more emphasis on our estimated win rate and the fact that our bankroll management strategy will affect our psychology and our ability to play our A-game.

When it comes to the latter, another amazing quote by Tommy Angelo can prove helpful:

Bankroll management is like buying mental insurance".

Even if your betting patterns are good enough to make you a winner at certain limit you might feel uncomfortable with a bankroll that's not deep enough (offering to high of a risk or ruin) or even too deep (slowing down your progress) which in turn will cause you to slip into your B or C game way too often, effectively causing you to hit your level of incompetence. As for evaluating your win rate, this is never an easy task and the existence of variance makes it impossible to come up with the exact number even if you have a large database with hundreds of thousands of hands.

That being said you can always make an educated guess based on incomplete information (which is pretty much a job description of a poker player). The main problem is that our ego makes us really bad at those kinds of estimations. Here's the thing, even a recreational player can hit a lucky streak of 10k hands winning at a very fast rate and desperately clinging to the idea that he's a "10bb/100" winner for the rest of his "career" even though most of the hands he played would suggest otherwise.

On the other side of the spectrum you have a solid semi-pro low stakes player who after beating NL25 and NL50 proceeds to hit a 100k break even streak at NL100. He figures out that the 8bb/100 win rate he managed to achieve at NL25-50 means that he's probably a solid winning player but his results might have been positively affected by variance and maybe, in reality, he's more of a 3-4bb/100 NL50 player.

In that case attempting to win at NL100 isn't the best course of action for him. He takes a step back in order to take a step forward in the future when it makes more sense for him.

One of the main issues highlighted by the Peter Principle is the fact that in most modern hierarchies the position of a worker can't be downgraded and therefore people are destined to hit their level of incompetence. Fortunately, poker is much more fluid in that regard.

Your own ego is the only thing that can stop you from taking a calculated step back which will be the correct course of action more often than most of us care to admit. Negative consequences of the process described by Laurence J. Peter and William Hull can be seen even at the highest levels of play.

Consider the examples of Gus Hansen and Viktor 'Isildur1' Blom. Both of them were smart and committed enough to get to the highest levels of play but it could be argued that taking the foot off the gas pedal and dropping down in stakes at various points of their journey would make their careers much better.

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