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Concept
Zero-sum game
Summary
Zero-sum game is a mathematical representation in game theory and economic theory of a situation that involves two sides, where the result is an advantage for one side and an equivalent loss for the other. In other words, player one's gain is equivalent to player two's loss, with the result that the net improvement in benefit of the game is zero.
If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Thus, cutting a cake, where taking a more significant piece reduces the amount of cake available for others as much as it increases the amount available for that taker, is a zero-sum game if all participants value each unit of cake equally. Other examples of zero-sum games in daily life include games like poker, chess, and bridge where one person gains and another person loses, which results in a zero-net benefit for every player. In the markets and financial instruments, futures contracts and options are zero-sum games as well.
In contrast, non-zero-sum describes a situation in which the interacting parties' aggregate gains and losses can be less than or more than zero. A zero-sum game is also called a strictly competitive game, while non-zero-sum games can be either competitive or non-competitive. Zero-sum games are most often solved with the minimax theorem which is closely related to linear programming duality, or with Nash equilibrium. Prisoner's Dilemma is a classic non-zero-sum game.
The zero-sum property (if one gains, another loses) means that any result of a zero-sum situation is Pareto optimal. Generally, any game where all strategies are Pareto optimal is called a conflict game.
Zero-sum games are a specific example of constant sum games where the sum of each outcome is always zero. Such games are distributive, not integrative; the pie cannot be enlarged by good negotiation.
In situation where one decision maker's gain (or loss) does not necessarily result in the other decision makers' loss (or gain), they are referred to as non-zero-sum.
Official source
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