zero-sum game
A situation in which one participant's gain is exactly balanced by another's loss.
Example
“Poker is a zero-sum game — every dollar won by one player is lost by another.”
Memory Tip
ZERO-SUM — the gains and losses always add up to ZERO. One person's win = another's loss.
Why It Matters
Understanding zero-sum games helps you recognize financial situations where your gain directly comes at someone else's expense, such as in trading or gambling. This awareness can prevent you from overestimating your potential returns and helps you make more realistic assessments of financial opportunities.
Common Misconception
Many people incorrectly believe all financial markets are zero-sum games, but most legitimate investing and business activities are positive-sum where all parties can benefit. The stock market, for example, can create wealth for multiple participants simultaneously through economic growth and company value creation.
In Practice
In a poker game with fixed stakes, if one player wins 100 dollars, that amount comes directly from other players who lost money, making it a true zero-sum game. Conversely, when you buy stock in a growing company that increases in value, both you and the original seller can profit if the company succeeds, demonstrating a positive-sum scenario.
Etymology
Zero (nothing) + sum (total) + game — a game where the total gains and losses sum to zero.
Common Misspellings
Learn economics & finance from top universities
Related Terms
More in economics
Other economics terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.