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Smart people struggle to win.

They overanalyze and overthink everything. Perhaps you’ve noticed? This means they often struggle financially and can’t as easily reach their version of financial freedom.

To make things worse, smart people will often try and work harder to financially get ahead. This only compounds their losses even further. It’s sad to watch as someone that’s worked with a lot of smart people online over the last 12 years.

But it doesn’t have to be this way.

Game theory explains why this problem happens. And once you understand the power of game theory, you will never think or act the same again (regardless of your IQ).

Here’s how to use game theory so you can win more in life.

Why smart people pay $40 to win a $1 bill

Economist Martin Shubik ran a weird experiment in 1971.

He decided to auction off a $1 bill. Badass. There was one rule: the highest bidder wins the dollar, but the second-highest bidder still has to pay their final bid, and gets nothing for it.

The result is fascinating.

The auction starts with some clever cat bidding 5 cents (a nickel). The next genius will bid 10 cents. Now they’re in first place. But the moment you’re in second place, the math changes underneath you. You’re no longer bidding to win a dollar. You’re bidding to avoid paying for nothing.

The logical step is to bid higher to regain first place. The other person does this too. Each increase in bid is rational. Each one is a response to a real, immediate loss.

Martin watched smart people pay as much as $40 to own a $1 bill.

These people weren’t dumb. They were simply sucked into a game and doing the sensible thing until they ended up in trouble.

Those who played this game and worked the hardest, refused to lose, played the longest, and placed the most aggressive bids lost the most money. They were playing a losing game and no matter how smart they were, there was no way out.

Professor Gordon Tullock gave this a name: rent-seeking.

It’s when people pour real resources — time, money, effort, years — into competing for a prize, and the total spent chasing it ends up larger than the prize itself. Everyone is working hard. Everyone is being rational.

And together they lose more than they can ever win.

The $1 bill auction isn't a story about lazy people losing to hard workers. It's the reverse. The harder you try, the more you lose. And once you notice this pattern, you start seeing it in a lot of places where money is on the line.

• The bidding war on a house where two families talk themselves past their own limit.

• The credential arms race, where everyone gets the extra degree so the extra degree stops meaning anything and the debt stays.

• The price war where two businesses undercut each other into bankruptcy.

• The 60-hour weeks at a company where the reward for hitting the target is a higher target.

• The s*xy job at Google that 40 other qualified people also want.

In every one of these, working harder isn't your advantage. It's the very thing the game feeds on. This is why smart, hardworking people stay stuck, and it isn’t a paradox once you say it plainly:

Effort spent inside a rigged game gets absorbed by the game.

You can be the best bidder in the dollar auction. Being the best bidder is exactly how you lose $40. What protects your money isn’t doing the same thing everyone else does, only harder. It’s a completely different skill: looking at a game, seeing how it works before you’re pulled in, and walking away from it.

That’s the uncomfortable reframe.

We’re trained to admire the smart person who tries harder. But in a rigged game, trying harder is a sign that you haven’t understood the rules. The high-value, rarer move is to see the auctioneer smiling, do the math on where this ends, and keep your hand down.

Working harder was never going to fix it. The $1 bill was never the point. You were.

This auction story also explains most business opportunities and traditional jobs. It’s why the famous line “Even if you win the rat race, you’re still a rat” is so damn good. Understand the game you’re playing and the incentives before you ever play. Or you’ll end up a broke rat chasing cheese on a hook like a dumb-dumb.

The man who watched traffic and won a Nobel Prize for it

William Vickrey won the 1996 Nobel Prize in Economics.

He died three days after it was announced.

He’d spent much of his career on a problem so ordinary and boring that most people never think of it as a problem at all: the traffic jam.

William’s insight was that nobody in a traffic jam is doing anything wrong. Every driver on the road at 8:15am made a sensible decision. They need to be at work at 9.

The roads are public and free. Leaving at 8:15 is the rational choice given everyone’s constraints. And precisely because it’s the rational choice, everyone makes it. The result is a jam that no single one of them chose and no single one of them can escape.

This is the part worth deeply thinking about. The jam is not a failure of effort. It’s the sum of everyone’s effort, pointed in the same sensible direction at the same sensible time.

Trying to beat the traffic jam full of office workers is where it gets interesting.

You leave earlier. Smart. For a while it works — until enough other people reason the same way, and the peak simply shifts earlier to meet you. You learn the back routes, the shortcuts, the timing of the lights.

So does everyone with a navigation app, and the shortcuts fill in until they’re as slow as the road you left.

You drive more aggressively, change lanes, push. You arrive at the same time, more tired. Every move you make to beat the traffic gets copied by everyone else making the same move, and the jam quietly reforms around you. You cannot out-effort a jam, because the jam is made of effort exactly like yours (so is the corporate world).

William’s actual solution wasn’t to tell drivers to try harder or wake up earlier. That’d be dumb. He understood that no amount of individual cleverness could touch the problem, because the problem lived in the structure, not the drivers.

His solution: congestion pricing.

Change what it costs to drive at the peak, and you change the game everyone i