Positive Sum

In my economics and finance courses, we are taught the fundamentals of game theory, often rooted in the idea of “zero sum games.” Zero sum implies that the “total gain of the market – total losses of the market” sum to zero. In other words, some people win, others lose, but we, together, are often indifferent. 

Thus, cutting a cake, where taking a larger piece reduces the amount of cake available for others, is a zero-sum game if all participants value each unit of cake equally (see marginal utility).

Not every situation is like this. 

Investing in stocks is actually a negative sum game for investors – as returns are zero-sum (there are winners for every loser) but trading fees make it a net negative for the market. 

Most “games,” though, I think are positive sum, meaning individual stakeholders can contribute to the overall rise of the market sum. This occurs when incentives are aligned and markets are sufficiently large enough to have many winners. 

I think that this simple concept of positive sum game creation makes for an interesting lens. For most of life, we are taught that life is a tournament, and we are all competing for the riches at the top. Though, we hardly mention the scenario in which we create enough riches such that we are all better off. We hardly give credit to the positive sum game, the chance for the rise of the we.

It would be naive, though, to think that we are not competing. Positive sum does not mean we are not competing. There must be losers to have winners. Then what does it mean? 

It implies that together we can rise, just as together we can fall. But we can also contribute to the collective pool of opportunity. We can, as we have in the past, raise the bar by aligning on certain items. 

Most things in life…I think…are actually positive sum. 

Also published on Medium.