The "logic" that are using here would justify everyone to go to a casino and put their life savings down on black.
It's gambler brain logic just couched in pseudo-intellectual terminology to make them sound smart. The equivalent of techno babble for gambling.
> And would you keep on playing that, double or nothing?
The point being that if you'd push that button now, in this world, then what would be different in the new world to stop you from pushing the button again? There's no stopping point, hence the St. Petersburg paradox. Maybe the button has already been pushed, maybe multiple times. If anything, Cowen seems to be presciently pointing out that SBF's attitude will inevitably lead to disaster.
SBF does seem to be misunderstanding: push the button forever, and maybe magic will happen!
Which is actually why it's both intelligent and dumb at once. You have to have done some reading in your life to understand this thing. As someone who did well at math and worked in trading, he would have come across it. But it's also unwise because actually lots of other people have also studied it for a long time, and they are not declaring victory.
I'm not sure I'd even call this 'understands how things work' - everyone who's heard of marginal utility knows that large scale double-or-nothing 51/49 gambles very rarely make sense to take.
To me this sounds more like someone hopped up on a nootropic that causes compulsive gambling, like Emsam.