What is a 'ZeroSum Game'
Zerosum is a situation in game theory in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero. A zerosum game may have as few as two players, or millions of participants.
Zerosum games are found in game theory, but are less common than nonzero sum games. Poker and gambling are popular examples of zerosum 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 zerosum games. In the financial markets, options and futures are examples of zerosum games, excluding transaction costs. For every person who gains on a contract, there is a counterparty who loses.
BREAKING DOWN 'ZeroSum Game'
In game theory, the game of matching pennies is often cited as an example of a zerosum game. The game involves two players, A and B, simultaneously placing a penny on the table. The payoff depends on whether the pennies match or not. If both pennies are heads or tails, Player A wins and keeps Player B’s penny; if they do not match, Player B wins and keeps Player A’s penny.
This is a zerosum game because one player’s gain is the other’s loss. The payoffs for Players A and B are shown in the table below, with the first numeral in cells (a) through (d) representing Player A’s payoff, and the second numeral Player B’s playoff. As can be seen, the combined playoff for A and B in all four cells is zero.
Most other popular game theory strategies like the prisoner’s dilemma, Cournot Competition, Centipede Game and Deadlock are nonzero sum.
Zerosum games are the opposite of winwin situations – such as a trade agreement that significantly increases trade between two nations – or loselose situations, like war for instance. In real life, however, things are not always so clearcut, and gains and losses are often difficult to quantify.
In the stock market, trading is often thought of a zerosum game. However, because trades are made on the basis of future expectations and traders have different preferences for risk, a trade can be mutually beneficial. Investing longer term is a positive sum situation because capital flows facilitation production and jobs that then provide production and jobs that then provide savings and income that then provide investment to continue the cycle.
History of ZeroSum Game Theory
Game theory is a complex theoretical study in economics. The 1944 groundbreaking work “Theory of Games and Economic Behavior,” written by Hungarianborn American mathematician John von Neumann and cowritten by Oskar Morgenstern, is the foundational text. Game theory is the study of strategic decision making between two or more intelligent and rational parties. The theory, when applied to economics, uses mathematical formulas and equations to predict outcomes in a transaction, taking into account many different factors, including gains, losses, optimality and individual behaviors.
Game theory can be used in a wide array of economic fields, including experimental economics, which uses experiments in a controlled setting to test economic theories with more realworld insight. In theory, zerosum game is solved via three solutions, perhaps the most notable of which is the Nash Equilibrium, put forth by John Nash in his 1951 paper “NonCooperative Games.” The Nash equilibrium states that two or more opponents in the game, given knowledge of each others’ choices and that they will not receive any benefit from changing their choice, will therefore not deviate from their choice.
ZeroSum Game and Economics
When applied specifically to economics there are multiple factors to consider when understanding a zerosum game. Zerosum game assumes a version of perfect competition and perfect information; that is, both opponents in the model have all the relevant information to make an informed decision. To take a step back, most transactions or trades are inherently non zerosum games because when two parties agree to trade they do so with the understanding that the goods or services they are receiving are more valuable than the goods or services they are trading for it, after transaction costs. This is called positivesum, and most transactions fall under this category.
Options and futures trading is the closest practical example to a zerosum game scenario. Options and futures are essentially informed bets on what the future price of a certain commodity will be in a strict timeframe. While this is a very simplified explanation of options and futures, generally if the price of that commodity rises (usually against market expectations) within that timeframe, you can sell the futures contract at a profit. Thus, if an investor makes money off of that bet, there will be a corresponding loss. This is why futures and options trading often comes with disclaimers to not be undertaken by inexperienced traders. However, futures and options provide liquidity for the corresponding markets and can be very successful for the right investor or company.

Gaming Industry ETF
Gaming ETFs invest in companies that generate revenue from the ... 
Nash Equilibrium
A concept of game theory where the optimal outcome of a game ... 
Backward Induction
The process of deducing backwards from the end of a problem or ... 
Paradox of Rationality
The irony that rational decisionmaking in game theory situations ... 
Game Changer
1. A person who is a visionary. 2. A company that alters its ... 
Advertising Allowance
Money that a product manufacturer or service provider pays to ...

Tech
How To Game The Video Game Industry
Investopedia explores the business, current developments, future trends of video games industry and how the overall industry makes money. 
Insights
Advanced Game Theory Strategies For DecisionMaking
The importance of game theory to modern analysis and decisionmaking can be gauged by the fact that since 1970, as many as 12 leading economists and scientists have been awarded the Nobel Prize ... 
Tech
You Love Video Games, But Do You Know How The Industry Works?
Traditionally, the video game industry was limited to consoles, such as Microsoft’s (MSFT) Xbox and Sony’s (SNE) PlayStation, but it now includes PC games, mobile games and, in the near future, ... 
Tech
Are Big Budget Video Games Dead?
More people seem to be gaming on tablets and smartphones over consoles, which means this could be the end of big budget console games. 
Tech
Microsoft to Enable Game Gifting in the Xbox One Store
Microsoft revealed in a tweet that it will soon let customers gift games via the Xbox One Store. 
Insights
The 6 Most Famous Failed Video Game Makers (KING, ZNGA)
The videogame industry pulls in $100 billion in revenue annually. Failed companies offer a cautionary tale. 
Personal Finance
The BestSelling Video Games Of All Time
Video games are selling better than ever before, but how can investors get in on the action? 
Investing
Top Video Game Stocks for 2018
Three video game stocks on an uptrend with gains expected to continue in 2018. 
Investing
Gaming Stocks to Watch in 2017 (ATVI, NTES)
2016 was the best year in history for the video game industry. Will 2017 be even stronger? 
Investing
Power Up Your Portfolio With Video Game Stocks
Level up your winnings by investing in this fastpaced, highly skilled industry.

What does the Nash equilibrium predict?
Learn more about the famous Nash equilibrium, which is the revolutionary concept in game theory about the economics of human ... Read Answer >> 
What are some examples of the law of demand in real markets?
Find out how the price of a good or service affects the quantity demanded, and explore instances of consumption reflecting ... Read Answer >> 
When a stock price decreases, where does my money go?
Learn what happens when a share's price decreases in value. Find out if that change in a company's market value is redistributed ... Read Answer >> 
Is a good's production cost related to its value?
Learn about the history and debate regarding the metrics used to determine the value of a good and which theories place emphasis ... Read Answer >> 
How does behavioral economics treat risk aversion?
Learn about the relationship between decisionmaking and risk, as described by one of the foundational theories in behavioral ... Read Answer >>