Zero-Sum Game

Moneybestpal Team

A zero-sum game is one in which the gains of one individual or group are exactly offset by the losses of another. In other words, the worth of the game as a whole doesn't change, and every gain for one side results in a loss for the other. 

This idea is derived from game theory, a field of mathematics that examines the tactical interactions of logical decision-makers.

Some examples of zero-sum games are:
  • Chess: When a player checkmates another, the game is over and that player wins while the other loses. In the game of chess, a draw or a tie is impossible.
  • Poker: Each participant attempts to win as much money as they can by betting, bluffing, or folding. The total amount of the pot is set. The winner keeps all the money, while the losers walk away empty-handed.
  • Futures contracts: These are contracts to purchase or sell an asset at a future date and price. The cost of the underlying asset at the time of delivery determines the contract's value. The buyer wins and the seller loses if the price increases; the seller wins and the buyer loses if the price decreases.

Zero-sum games are sometimes known as purely competitive games due to the obvious conflict of interest that exists between the players. Without considering how it will impact the other players, each player aims to maximize their personal payout. Zero-sum games do not allow for cooperation or compromise.

Yet, not all circumstances involve a zero-sum game. Some scenarios are non-zero-sum games, where the overall gain or value of the game might rise or fall based on the participants' actions. Depending on whether the participants' interests are in conflict or alignment, non-zero-sum games can be either competitive or non-competitive. Some examples of non-zero-sum games are:
  • Prisoner's dilemma: This is a well-known instance of a competitive non-zero-sum game. The cops detain two individuals and question them individually. Each suspect has the option of confessing or staying silent. If they both confess, they will each serve five years in prison; if they both don't, they will each serve one year; and if one confesses and the other doesn't, the confessor will walk off free and the silent person will get ten years. The best conclusion for both suspects is silence, but each has the motive to come clean and implicate the other.
  • Public goods: These are non-excludable and non-rivalrous goods, which means that anyone can use them and that doing so does not make them less available to others. Examples include public parks, national defense, and clean air. Public goods are non-competitive, non-zero-sum games. Everyone benefits from the provision of public goods, but there is a problem of free-riding when some people take advantage of the benefits without helping to cover the expenses.
  • Negotiation: The goal of this process is to help two or more parties come to a mutually beneficial agreement. Depending on whether there are a fixed or variable number of resources to be split, negotiations can be either zero-sum or non-zero-sum. Negotiating over a project deadline, for example, is not a zero-sum game because there may be ways to improve efficiency or quality without raising costs. But, negotiating over pay is a zero-sum game because there is a set amount of money that can be paid to an employee.

Why does it matter whether or not anything is a zero-sum game? due to the fact that our strategic approach will be impacted. We must be aggressive and defensive in zero-sum games since any advantage we receive entails a disadvantage for another player. Because we might be able to come up with solutions that work for everyone in non-zero-sum games, we might have the chance to work together and be inventive. We can determine the most effective course of action for accomplishing our objectives by understanding whether or not we are engaged in a zero-sum game.