What is a Zero-Sum Game? Definition and meaning - Market Business News (2024)

A Zero-Sum Game, which may have just two or up to millions of participants, is one in which one player’s gain is equivalent to another’s loss – therefore the net change in benefit or wealth is zero. When somebody wins in the game, another person loses the same amount, so that the winnings minus the losses equal zero.

Zero-sum games can be found in game theory and economic theory. They are, however, less common than non-zero-sum games. The adjective ‘zero-sum‘ originated in game theory in the 1940s.

In card games where people gamble, such as poker, the amount won by the winning player equals the combined losses of the losing players. Therefore, poker is a zero-sum game. If there is one winner and one loser – as in most games or contests such as tennis, chess, arm wrestling, or dominoes – it is a zero-sum game.

What is a Zero-Sum Game? Definition and meaning - Market Business News (1)

Zero-sum games exist in financial markets – examples include options and futures (excluding transaction costs). For each party who gains on a contract, there is a counter-party who loses that same amount.

Zero- vs. non-zero sum games

What is a Zero-Sum Game? Definition and meaning - Market Business News (2)

A non-zero sum game is the opposite of a zero-sum game. When the interacting parties’ aggregate gains and losses are either less than or more than zero – but never exactly zero – it is a non-zero-sum game.

In economics, there are many situations that are non-zero-sum, since valuable goods and services can be created or destroyed – any of these games will create a net gain or loss of utility to several stakeholders.

When wealth is created, or additional benefits emerge, the total of one party’s gain is not exactly the total of another party’s loss.

What is a Zero-Sum Game? Definition and meaning - Market Business News (3)

All trade, in fact, by definition is a non-zero-sum-game, because when the buyer and seller agree to an exchange, each party must consider the goods or money it is receiving to be more valuable than the goods or money it is delivering.

Whenever an economic exchange occurs – with both parties acting freely – it must benefit them both to the point that each party can overcome the transaction costs. If not, they would never have entered the transaction.

Non-zero-sum games are non-strictly competitive, because they have both cooperative elements – it is not a question of it ending with one winner and loser. The players engaged in a non-zero-sum game have some complementary interests.

While zero-sum games are strictly competitive – there is one winner and one loser – it is possible for the players in a non-zero-sum game to both win, or both lose.

In a zero-sum game if there is no outright winner there might be a tie. In an arm-wrestling competition, both players or a referee may decide to call it a draw if enough time passes without one being able to beat the other.

Zero-sum games often not black and white

Many real life situations may look like winner-loser possibilities, but when you look at them more deeply you will find that it is not always the case. The pay-offs and losses in real life are not that easy to quantify.

Imagine you own a small business and have $2,000 to spare. You are trying to decide whether to reinvest it in your company or donate it to charity.

If you decide to reinvest it, the charity gets nothing. However, there is a chance that in the long-term the charity might gain. That $2,000 reinvestment could yield remarkable dividends, which allow you to donate much more than $2,000 at a later date.

If you decide to give the $2,000 to the charity, it may seem that the loser is your company. However, there may be some useful benefits in donating money that could help your business thrive. Your company’s reputation in the local community could improve, which may result in greater sales.

The Cambridge Dictionary has the following definition of zero-sum game:

“A situation in which an advantage that is won by one of two sides is lost by the other.”

In zero-sum games, especially in competitive environments like trading or gambling, skillful strategy and informed decision-making are crucial for gaining an edge over the competition.

Video – What is a Zero-Sum Game?

This educational video, from our sister channel on YouTube – Marketing Business Network, explains what ‘Zero-Sum Game’ means using simple and easy-to-understand language and examples.

What is a Zero-Sum Game? Definition and meaning - Market Business News (2024)

FAQs

What is a Zero-Sum Game? Definition and meaning - Market Business News? ›

A zero-sum game is a situation where, if one party loses, the other party wins, and the net change in wealth is zero. Zero-sum games can include just two players or millions of participants.

What is the meaning of zero-sum game in business? ›

In game theory and economic theory, the term zero-sum game describes the financial gains of one party that cause an equal amount of loss for the other party. The net change in wealth in these situations is zero, meaning the loss of one party is beneficial to another party.

What is a zero-sum game Quizlet? ›

In a zero-sum game, one player's gain is by definition equal to the other's loss, whereas in a non-zero sum game, it is possible for both players to gain or lose.

What is the meaning of zero game? ›

noun. : a situation in which one person or group can win something only by causing another person or group to lose it. Dividing up the budget is a zero-sum game.

What is a zero-sum game also known as? ›

A zero-sum game is also called a strictly competitive game, while non-zero-sum games can be either competitive or non-competitive. Zero-sum games are most often solved with the minimax theorem which is closely related to linear programming duality, or with Nash equilibrium.

What is an example of zero sum thinking? ›

In a negotiation when one negotiator thinks that they can only gain at the expense of the other party (i.e., that mutual gain is not possible). In the context of social group competition, the belief that more resources for one group (e.g., immigrants) means less for others (e.g., non-immigrants).

What is a zero-sum game in the stock market? ›

In the financial world, options represent one form of a zero-sum game since an option will gain or lose value for one party and do the opposite for the other. The buyer and seller are at odds, meaning that a gain for one is a loss for the other. The same holds true for other derivatives.

What are sum zero games examples? ›

Poker and gambling are popular examples of zero-sum games since the sum of the amounts won by some players equals the combined losses of the others. Games like chess and tennis, where there is one winner and one loser, are also zero-sum games.

Which of the following best describes a zero-sum game? ›

Mathematicians, economists and analysts use the term zero-sum game throughout game theory and economic theory. It describes the financial gains of one party that cause an equal amount of loss for the other party.

What is another name for a zero-sum game? ›

winner-take-all. hard-line. high-stake. win-or-lose. high stakes.

What is the opposite of zero-sum game? ›

In game theory, situation where one decision maker's gain (or loss) does not necessarily result in the other decision makers' loss (or gain). In other words, where the winnings and losses of all players do not add up to zero and everyone can gain: a win-win game.

Is Rock Paper Scissors a zero-sum game? ›

A rock beats scissors, scissors beat paper by cutting it, and paper beats rock by covering it. In this simulation, the computer has two different strategies that it can follow. Rock, paper, scissors is an example of a zero-sum game without perfect information. Whenever one player wins, the other loses.

What does zero-sum game mean slang? ›

If you refer to a situation as a zero-sum game, you mean that if one person gains an advantage from it, someone else involved must suffer an equivalent disadvantage. They believe they're playing a zero-sum game, where both must compete for the same resources. Pronunciation. Word of the day: 'satyrid'

Is business a zero-sum game? ›

So often business is a zero-sum game. We approach it with an “I win, you lose” mentality. We do everything we can in order to gain any advantage, to prevail, and to possess.

How to win zero-sum game? ›

Equilibria in Zero-Sum Games

Effectively, player A wins when they play the same numbers and player B wins when they play different numbers. Note that this is a zero-sum game, because in any situation, the gains and losses of A and B sum to zero.

What is the value of a zero-sum game? ›

The "value of a zero-sum game" usually means the (expected) reward for a fixed player (say, player 1) in a Nash equilibrium (i.e., "optimal") strategy profile. For example, the value of tic-tac-toe is "draw" for both players. The value of connect four is "win" for player 1 and "loss" for player 2.

What is an example of a two person zero-sum game? ›

Tic-tac-toe is a simpler example of a two-player zero-sum game. To a game theorist, a strategy for the first player describes the first move and where to move on future opportunities under all possible circ*mstance. This leads to an enormous number of strategies.

What is an example of a nonzero sum game? ›

What is a Non Zero Sum Game? A non zero sum game is a situation where there is a net benefit or net loss to the system based on the game's outcome. An example of what should be considered a non zero sum game is a contest between a trade ship and a pirate ship, although it may look like one at first glance.

What's the opposite of a zero-sum game? ›

In game theory, situation where one decision maker's gain (or loss) does not necessarily result in the other decision makers' loss (or gain). In other words, where the winnings and losses of all players do not add up to zero and everyone can gain: a win-win game.

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