A military commander may approach decision with either of two philosophies. He may select his course of action on the basis of his estimate of what the enemy is able to do to oppose him. Or, he may make his selection on the basis of what his enemy is going to do. The former is a doctrine of decision based on enemy capabilities; the latter, on enemy intentions. The doctrine of decision of the armed forces of the United States is a doctrine based on enemy capabilities. A commander is enjoined to select the course of action which offers the greatest promise of success in view of the enemy capabilities.

–R. Duncan Luce and Howard Raiffa, Games And Decisions: Introduction & Critical Survey

A recent Epsilon Theory note has me thinking on how we play the various games and meta-games that touch our lives. Specifically, how often we dismiss our opponents and competitors as stupid, ignorant, or subject to behavioral biases and constraints we’ve miraculously managed to transcend.

Our opponents and competitors may indeed be stupid, ignorant, and subject to behavioral biases and constraints we’ve miraculously managed to transcend. But basing business and investment decisions on this characterization is bad strategy.

History is rich with examples. In the first world war, for example, Britain badly underestimated Ottoman resources and fighting spirit, at the Dardanelles and again at Gallipoli.

A common variation on this mistake is refusing to adapt to changes in our opponents’ capabilities, or changes in the payoffs and estimations shaping the game. This may arise out of hubris and ignorance. More often it’s a result of institutional inertia and constraints. We sometimes call this the “man with a hammer” problem.” When the only tool we’ve got is a hammer, every problem is either a nail, or analogous to a nail.

In the case of France in the run-up to the second world war, economic and political constraints mired the country in a defensive posture. In fact, geopolitical reality demanded a decisive, proactive strategy. As Kissinger writes in Diplomacy:

French policy grew increasingly reactive and defensive. Symbolic of this state of mind was that France began to construct the Maginot Line within two years of Locarno–at a time when Germany was still disarmed and the independence of the new states of Eastern Europe depended on France’s ability to come to their aid. In the event of German aggression Eastern Europe could only be saved if France adopted an offensive strategy centered on its using the demilitarized Rhineland as a hostage. Yet the Maginot Line indicated that France intended to stay on the defensive inside its own borders, thereby liberating Germany to work its will in the East.

In the investing game, we build Maginot Lines all the time. We’re building and extending Maginot Lines whenever we embrace and promote appealing narratives in a way that reinforces rigid and inflexible thinking.

Discretionary active managers build Maginot Lines with narratives about index funds distorting valuations and ETFs as weapons of mass destruction.

Bogleheads build Maginot Lines with narratives about the greedy asset managers and efficient markets.

Financial advisors build Maginot Lines defending various fee structures with endless sniping and virtue signaling around what compensation structure makes someone “a true fiduciary.”

The Maginot Mentality is a kind of strategic solipsism. It assumes our opponents and competitors will play to our strengths and weaknesses. Or, perhaps, they’ll play according to some caricature we’ve drawn of their own strengths and weaknesses. It’s bad strategy, all around.

Mostly, the Maginot Lines we build for ourselves are symbols. Sure, they can be real enough. All those forts and gun emplacements along the Franco-German border were certainly real enough. They even impacted strategic decision making. But our opponents aren’t obligated to act according to the caricature we’ve drawn. They can choose another axis and mode of advance–one that plays to their true strengths and weaknesses.

Sound strategic thinking assumes they will.