DEFINITION of 'Matching Pennies'
Matching Pennies is a basic game theory example that demonstrates how rational decisionmakers seek to maximize their payoffs. Matching Pennies involves two players simultaneously placing a penny on the table, with the payoff depending on whether the pennies match. If both pennies are heads or tails, the first player wins and keeps the other’s penny; if they do not match, the second player wins and keeps the other’s penny. Matching Pennies is a zerosum game in that one player’s gain is the other’s loss. Since each player has an equal probability of choosing heads or tails and does so at random, there is no Nash Equilibrium in this situation; in other words, neither player has an incentive to try a different strategy.
BREAKING DOWN 'Matching Pennies'
Matching Pennies is conceptually similar to the popular “Rock, Paper, Scissors,” as well as the “odds and evens” game where two players concurrently show one or two fingers and the winner is determined by whether the fingers match.
Consider the following example to demonstrate the Matching Pennies concept. Adam and Bob are the two players in this case, and the table below shows their payoff matrix. Of the four sets of numerals shown in the cells marked (a) through (d), the first numeral represents Adam’s payoff, while the second entry represents Bob’s payoff. +1 means that the player wins a penny, while 1 means that the player loses a penny.
If Adam and Bob both play “Heads,” the payoff is as shown in cell (a) – Adam gets Bob’s penny. If Adam plays “Heads” and Bob plays “Tails,” then the payoff is reversed; as shown in cell (b), it would now be 1, +1, which means that Adam loses a penny and Bob gains a penny. Likewise, if Adam plays “Tails” and Bob plays “Heads,” the payoff as shown in cell (c) is 1, +1, and if both play “Tails” the payoff as shown in cell (d) is +1, 1.
Adam / Bob 
Heads 
Tails 
Heads 
(a) +1, 1 
(b) 1, +1 
Tails 
(c) 1, +1 
(d) +1, 1 

Penny Stock
A Penny Stock is an equity security that trades below $5. Penny ... 
Payoff Statement
A payoff statement is a statement prepared by a lender providing ... 
Penny Stock Reform Act
A securities act enacted in 1990 that sought to clamp down on ... 
Centipede Game
The centipede game in game theory involves two players alternately ... 
Currency Binary Option
A currency binary option is a way to make very shortterm bets ... 
Paradox of Rationality
The paradox of rationality is the empirical observation that ...

Investing
Understanding Penny Stocks' Risks and Rewards
Penny stocks can soar in a short period, but dabbling in them is a dangerous game. Here is a breakdown on the risks and rewards of penny stocks. 
Investing
Looking to Begin Trading in The Stock Market?
If you are a new trader, we explain the differences between penny stocks and options so you can make the best decision for your personal trade plan. 
Investing
Why Do Penny Stocks Fail?
Penny stocks are speculative and highly risky investments. Lack of government and stock exchange oversight and general information leaves penny stock investors open to sudden losses. 
Trading
Penny Stocks Vs. Forex: Which Is Right for You?
Learn more about penny stock trading and forex market trading, and why each investment class appeals to different types of investors. 
Financial Advisor
The Most Crucial Financial Ratios For Penny Stocks
Given adequate financial disclosure, investors can use some of the same financial ratios for valuing blue chip stocks to evaluate penny stocks. 
Investing
Game Theory: Beyond the Basics
Take your game theory knowledge to the next level by learning about the Nash Equilibrium. 
Investing
How to pick winning penny stocks
When choosing penny stocks, wise investors note several key factors that affect the way these stocks trade – and the inherent risks that can follow. 
Tech
6 Dangerous Moves for FirstTime Investors
Firsttime investors beware of these potentially disastrous decisions. 
Investing
August 2016 Top Penny Stocks (CDTI)
Penny stocks are generally risky; however, these five experienced an incredible run in July 2016 and look like they may keep going. 
Investing
Top Penny Stocks for October 2016 (MIFI, CLD)
These are top penny stocks to watch this fall.