UK Accounting Glossary
In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.
A game in which the sum of the pay-offs to players is zero for every outcome.
In a non-competitive two-player zero-sum game a positive pay-off for one player implies a negative pay-off (of equal value) for the other player.
Zero-sum games represent direct opposition between the interests of the players and examples are often used to method to model conflict.
In mathematical game theory, a zero-sum game is a game in which losses of some of the players are exactly offset by gains of other players. Chess, for instance, is a zero-sum game, because a win for one player is a loss for another. Since the theory of a zero-sum game has some straightforward implications, one of the first questions an economist will consider in analyzing a market is whether it should be modelled as a zero-sum game or not. Very few business activities resemble a zero-sum game. More typically, each side mutually benefits from an exchange. The stock market is sometimes mistaken for a zero-sum game since one player’s payment to buy shares is exactly matched by the other player’s payment received for selling. The stock market is far from a zero-sum game; substantial wealth is created. To be a zero-sum game, all stocks would have to eventually revert back to the price at which they started trading. In contrast, the futures market is recognized as a zero-sum game.
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This glossary post was last updated: 5th May 2019.