zero sum game #my take

“Zero sum game” is a vague term. One of my financial math professors said every market is a zero sum game. After the class I brought up to him that over the long term, the stock (as well as gov bond) market grows in value [1] so the aggregate “sum” is positive. If AA sells her 50 shares to BB who later sells them back to AA, they can all become richer. With a gov bond, if you buy it at par, collect some coupons, sell it at par, then everyone makes money. My professor agreed, but he said his context was the very short term.

Options (if expired) and futures look more like ZSG to me, over any horizon.

If an option is exercised then I’m not sure, since the underlier asset bought (unwillingly) could appreciate next day, so the happy seller and the unwilling buyer could both grow richer. Looks like non-zero-sum-game.

Best example of ZSG is football bet among friends, with a bookie; Best example of NZSG is the property market. Of course we must do the “sum” in a stable currency and ignore inflation.

[1] including dividends but excluding IPO and delisting.

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