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Trading and Investment Terminology

Zero Sum Game

Zero Sum is a circumstance in game theory in which an individual's benefit is equal to another individual's loss, so the net change in money or advantage is zero.

A zero sum game may have as few as 2 players, or a huge number of members.

zero sum games can be found in game theory, yet are less normal than non-zero sum games.

Poker and betting are well known examples of zero sum games as the sum of the money won by certain players is equal to the consolidated losses of the other players.

Games like badminton and squash, where there is one victor and one loser, also fall into the category of zero sum games.

In the world of trading, options and futures would be the best examples of zero sum games, minus transaction fees.

For each individual who gains on an option or future contract, there is a another who has to face the loss.

In game theory, the game of matching coins is usually referred as an instance of a zero sum game.

The game has 2 players, X and Y, placing a coin on the table at the same time. The payment is based on whether the coins match or not.

If both coins match, Player X is the winner and gets to keep Player Y’s coin; if they do not match, Player Y is the winner and gets to keep Player X’s coin.

This classifies as a zero sum game as one player’s profit is the other’s loss.

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