This concept comes up among poker players. Smarts corresponds to an ability to talk about the correct play in a hand in theory. Toughness corresponds to a player's ability to continue to play well in a downswing. There are a lot of correct plays that can lead to bad outcomes with high frequencies. Sometimes a player encounters so many bad outcomes that they begin to doubt whether the play is correct.
Hmm I'm still a bit confused. You did the math when there is one simulation of you and found that he expects to make 20 by giving away money and 25 by not.
If there are two simulations doesn't it go the other way? If your strategy is to give away money there are now four indistinguishable siutations. 1/4(£260+£260-£100-£100) = £80
And if you decide not to give money away there are three indistinguishable situations. 1/3(£0+£0+£50) = £16.67
In school they taught that the climate in Mexico led to large sugar plantations while the climate of the US led to smaller farms especially in the north. Then this led to a more egalitarian distribution of wealth in the northern US which created the middle class demand that allowed manufacturing to take off. In Mexico the poor were too poor to buy a lot of these manufactured goods while the rich plantation owners could afford superior goods.
I'm not sure how an intelligence based explanation would explain this better.
You provide entertainment to people. Both players chose to play so even if one player has a negative expectation in $ he might enjoy playing the game.