The Zero-Sum Game Fallacy

If you think that society or your life is a zero-sum game, you will not optimize.

From Wikipedia:

In game theory and economic theory, a zerosum 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 participant(s).

In simple terms if someone wins, someone else must lose.  That idea leads to sloppy systems and weak solutions.

If I have a larger income, it does not follow that someone else had less.  It does not even imply that they had an expense that created my income.  When I acquire something that reduces my disposable income I do so only if I expect the value of the thing acquired will exceed what I have given up to get it.  That is how the economy really works.  Each party is a little better off.

Politicians like to work with zero-sum game analogies because they create contrasting and often conflicting opinions.  The rich are rich, therefore you must be poor.  It is their fault.  They must be taxed. 

A pretty dumb idea.  The rich got that way for a reason.  They supplied value to the rest of us.  Jobs, useful products, and welcomed services.  They made a lot of money because they did so efficiently and with larger scale.

Most business people estimate that their wealth will come from providing more value to society not by providing less.  If zero-sum games worked, providing less for the same price would be an advantage for them.  It could work in the short run, but given social media, the short run has become very short indeed.

How should people react?

  • Notice that envy is seldom a useful emotion
  • Value sells.  If you do not have high skills yet, attitude, punctuality and willingness to learn will suffice.
  • Awareness works.  Know enough to avoid those who provide less value than their price demands.  Do not count on the government to save you.  Judicious shopping and awareness of what value means for you is required.  Price is a poor indicator of value.
  • Share what you know and have discovered.  Each of us is continuously learning.  Help.

Life is not a zero-sum game.  If the economy was a zero-sum game it would never grow.  We know that the world economy today is 700 times larger than it was 200 years ago.  A very poorly played zero-sum game.  Average growth is around 3%.

Most businesses and almost all people are growing when they provide more than they take back.  Make it a point in your own life to be grateful for what you have and to give willingly.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  705-748-5181

This entry was posted in Our Societal Issues, Personal Finance and tagged , , , , . Bookmark the permalink.

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