Compound Interest & Infinite Games

Concepts behind outlier success.

August 3, 2023

The concept of compound interest is thought to be the eighth wonder of the world (as per Albert Einstein). It is what allows people to earn outsized returns, cultivate highly effective relationships, or build up a reputation over years. If not applied in your life, you are missing out on significant upside.

The basic notion of compound interest is that if you earn a benefit (dividends, relationships, reputation) and but that benefit back into the asset that generated that benefit and repeat that process many times, you will end up with exponential growth. If you start with 100€ and you get back 1% every day for a year, you will end up with ~3,800€. So the general idea is that if you earn a benefit repeatedly over a given time, your earnings and value compound exponentially.

Although the principle is primarily applied in finance, it usefulness extends far beyond. Relationships, building a business, creative pursuits, reputation, success in general.

If you can improve in a given skill 1% every day for a year, you will be ~38x better. Similarly, if you don't improve at all, you remain at 1x your skill level. Of course, improving 1% every day implies radical assumptions on the pace of compounding, yet it illustrates the point.

So the conclusion to make compound interest work for you is clear: find a way to get a positive % return repeatedly and stick with it for the long-term. As the absolute benefit you gain increases exponentially over time, the longer you stick with it, the larger your benefit will be.

This brings us to the second important idea: playing infinite games.

James P. Carse introduced the (philosophical) concept of finite and infinite games. The first, finite games are games played for the sole purpose of winning. In such games, a clear set of boundaries, constraints, and rules, with a clear end in mind is given. You are playing to win. Contrarily, the infinite game is played for the purpose of continuing to play indefinitely. There is no final goal to be reached. No one to beat. Only your authentic game you enjoy playing.

By definition, finite games have an end. So if you treat your career, business, or creative pursuits as a finite game, you will stop playing once you reach a self-proclaimed goal. Combining this with the notion of compound interest, you stop earning that benefit once you're done playing.

A better way to life is to play infinite games. Pursuing the things you authentically enjoy doing without an end point in mind. This way, you can compound indefinitely and reach outsized returns (measured by success, trust, or money), all while playing the game from a position of self-attained strength. Instead of focussing on the others extensively, you focus on your self.

The American entrepreneur and investor Naval Ravikant describes this "playing long-term games with long-term people". And you find similar patterns across all outlier successful people.

So what's the takeaway?

To make compound interest work for you, you need to 1) find a way to improve/increase by some % in regular time intervals, and 2) stick with it for a long time. If both conditions are satisfied, you are in a position to create outsized returns for yourself (success, trust, reputation, money). The best strategy to put yourself in that position is quit playing finite games, and start exclusively playing infinite games. Pursuits that have no end in mind and that you want to be playing continuously. Surely finding a pursuit that qualifies for you to stick with it isn't trivial. Yet, the task of figuring out what that thing is might be the most important task of your life. Play long-term games with long-term people.