Zero-sum vs non-zero-sum: what it means in macroeconomics

Game theory is a framework for analyzing how different players (for example, governments, institutions, firms, or individuals) interact when their outcomes depend on the decisions of others. Originating from the works of mathematician John von Neumann, this theory helps economists model strategic interactions, predict outcomes, and identify optimal strategies in different scenarios, from competitive behaviors to negotiations².

At the heart of this model lies a key distinction: are economic agents competing over a fixed pie, where one side’s gain is another’s loss, or are they working together to grow the pie, so that everyone can benefit? Understanding the difference between zero-sum and non-zero-sum dynamics is one of the most practical applications of game theory in macroeconomics.

Zero-sum dynamics happen when resources are limited or the total value within a system remains constant. In these situations, gains from one party potentially will come at the expense of another³. This perspective is useful for identifying real economic constraints, particularly in cases such as:

1. Fixed-budget allocations: Competing demands on public spending can be zero-sum scenarios. For example, if a government has a certain fixed budget, increasing allocation to one sector often requires an adjustment in other sectors due to limited resources.
2. Closed-economy labor shifts: A sudden surge in a particular sector may attract workers and investment to that area, potentially causing slower growth or reduced output in other sectors.
3. Short-term financial trades: Highly competitive trading environments often resemble zero-sum games. In these transactions, one trader’s gain directly mirrors another’s loss, representing a transfer of wealth.

While zero-sum thinking helps us identify real constraints and trade-offs, it can also cause us to overlook bigger opportunities to create value. This phenomenon is known as ‘zero-sum bias⁴’, the mistaken belief that if one person gains something, someone else must lose an equal amount, even when that’s not necessarily true.

In macroeconomics, this bias can show up, for example, in the belief that a trade deficit means a country is “losing” money to another, or that one region’s growth must come at the expense of another, regardless of the underlying economic reality.

In contrast, non-zero-sum models describe situations where the outcome isn’t fixed, meaning that all parties can gain or lose together, depending on how they work with each other⁵. In these scenarios, cooperation between parties can create net gains, driven by:

1. Comparative advantage: When countries or sectors specialize based on their strength, trade generates more total output than avoiding trade and relying solely on domestic production. This idea, first formalized by David Ricardo, frames trade as a positive-sum game, where nations can achieve greater prosperity through exchange than in isolation⁶. While some sectors may face short-term losses, trade agreements (for example, those under the World Trade Organization) often deliver broader, long-term gains.
2. Environmental cooperation: Multinational pacts on climate change, such as net-zero emission targets, may come with short-term costs, but the long-term benefits to public health, productivity, and global stability often outweigh them. This is a non-zero-sum situation where nations cooperate to tackle climate change, amplifying overall benefits and mitigating global risks.
3. Innovation ecosystems: Joint Research and Development (R&D) ventures can lead to breakthrough technologies that benefit everyone involved and create value across different industries. Some innovations don’t disrupt existing markets and can even potentially create new ones. This concept, often referred to as ‘nondisruptive creation,’ demonstrates how economic growth can occur without harming established sectors. Examples include microfinance, life coaching, and crowdfunding, all of which opened new opportunities and jobs in the past decade or so.

Non-zero-sum models emphasize collaboration, institutional credibility, and the design of win-win agreements. They remind us that the economic pie isn’t always fixed, but can be expanded through collaborative effort and strategic foresight.

For policymakers and investors, being able to assess whether a situation involves zero-sum or non-zero-sum dynamics can prove essential. Here’s how:

For policymakers

Zero-sum thinking is useful for policymakers when addressing areas with rigid constraints, such as managing finite resources, negotiating trade-offs, or designing protective measures in volatile markets. For example, during fiscal tightening, any policymakers involved may need to adopt a zero-sum approach to budgeting, where an increase in one area must be offset by reductions elsewhere. In these cases, it is highly important to identify key players, understand their incentives, and anticipate how they might respond to new policy interventions.⁶

Alternatively, policymakers can benefit from non-zero-sum thinking during situations where they want to foster growth, especially in areas that benefit from cooperation and shared value creation. This approach is relevant when building coalitions, investing in public goods, or enabling structural transformation. In these contexts, utilizing game theory provides a useful lens for understanding how different players respond to one another’s actions.⁷

By anticipating these strategic interactions, policymakers can craft more coordinated responses to shared challenges. Trade negotiations, currency stabilization, and environmental policy are all areas where recognizing interdependencies can lead to collaborative, win-win outcomes.

For investors

At a macroeconomic level, zero-sum thinking can offer insights during periods of fiscal contraction or tight monetary policy when public spending and budgets are constrained. In these environments, capital allocation often involves trade-offs, where gains in one area may come at the expense of another.⁸ Investors who can anticipate how policymakers will prioritize resources are better positioned to navigate short-term risks and sectoral shifts.

However, for long-term portfolio strategies, adopting a non-zero perspective may offer greater value. Large-scale public investments, such as those in infrastructure, green energy, and digital transformation, tend to stimulate broad-based economic growth, support job creation, and attract private capital.⁹ For investors, these trends can signal opportunities to gain exposure to sectors and regions poised to benefit from sustained government and private spending.

Understanding when to apply zero-sum or non-zero-sum thinking can help investors develop more resilient strategies, adjusting to near-term constraints while remaining focused on areas where cooperation, innovation, and capital flows drive broader, lasting value.

Knowing when to apply zero-sum or non-zero-sum thinking can help us better navigate today’s economic complexities. In macroeconomics, effective strategies are rarely one-size-fits-all; they need to respond to both immediate trade-offs and longer-term opportunities. With that in mind, here are a few things worth considering:

1. Institutional trust: Build transparent mechanisms to monitor, enforce, and adapt agreements. Trust in institutions facilitates cooperation and mitigates the risk of coordination failures. This is especially important in non-zero-sum situations, as the ability to communicate and commit to agreements can significantly affect outcomes, including mutually beneficial collective welfare. Without trust, cooperation is difficult to sustain, which limits the potential for shared gains.¹⁰
2. Inclusive design: When some groups benefit more than others, policies should include ways to support those left behind to keep society balanced. For example, globalization may be seen as a non-zero-sum situation, but some jobs may still be displaced in the process. This underscores the importance of public policies that help workers adapt and succeed in a rapidly changing landscape. Through this approach, the benefits of expanded economic activity are broadly shared, preventing social fragmentation that can affect long-term growth.¹¹
3. Strategic investment: Focus on areas with long-term benefit, particularly ones that promote innovation, inclusion, and resilience. This can take shape as investing in digital infrastructure and R&D, which can generate broad, non-zero-sum benefits across industries and societies.¹²

By applying these principles, short-term decisions can be better aligned with long-term goals. It is also important to challenge the ‘zero-sum myths’ in critical areas (e.g., climate change, energy transition policies, etc.), as these aspects require more comprehensive, coordinated investment and trade to be effective and deliver lasting impact.

The distinction between zero-sum and non-zero-sum thinking isn’t just theoretical; it shapes how we approach today’s biggest macroeconomic challenges. In an interconnected world, applying both lenses helps policymakers balance constraints like fiscal trade-offs with the potential for long-term, cooperative growth. For investors, understanding where value is created (and not just redistributed) can support more resilient, forward-looking strategies. A dual perspective grounded in strong institutions and shared goals can lead to smarter choices across trade, investment, and structural policy, helping us better navigate the complexities of the global economy, both now and in the future.

References

¹ Corporate Finance Institute. Zero-Sum Game vs. Non-Zero-Sum Game [Internet]. Vancouver: Corporate Finance Institute; [cited 2025 Jun 13]. Available from:
https://corporatefinanceinstitute.com/resources/economics/zero-sum-game-non-zero-sum/

² Weisberg M. Game Theory [Internet]. Stanford (CA): Stanford University; 2013 [cited 2025 Jun 13]. Available from:https://plato.stanford.edu/entries/game-theory/

³ Chen J. Zero-Sum Game [Internet]. New York: Investopedia; 2023 Jul 31 [cited 2025 Jun 13]. Available from:https://www.investopedia.com/terms/z/zero-sumgame.asp

⁴ Meegan DV. Zero-sum bias: perceived competition despite unlimited resources. Front Psychol. 2010 Nov 5;1:191. doi: 10.3389/fpsyg.2010.00191. PMID: 21833251; PMCID: PMC3153800.

⁵ Monash Business School. Non‑Zero‑Sum Game [Internet]. Melbourne: Monash University; [cited 2025 Jun 23]. Available from: https://www.monash.edu/business/marketing/marketing-dictionary/n/non-zero-sum-game

⁶ Roy G, Muscatelli A. Framing Economic Policies When There is Zero‑Sum Thinking: Can Economic Policy Address Political Division? [Internet]. London: National Institute of Economic and Social Research; 2025 Jan 21 [cited 2025 Jun 23]. Available from:
https://niesr.ac.uk/blog/framing-economic-policies-when-there-zero-sum-thinking-can-economic-policy-address-political-division/

⁷ Investopedia. How Game Theory Strategy Improves Decision‑Making [Internet]. 2013 Nov 11 [cited 2025 Jun 23]. Available from:
https://www.investopedia.com/articles/investing/111113/advanced-game-theory-strategies-decisionmaking.asp

⁸ Alesina A, Favero CA, Giavazzi F. The Output Effect of Fiscal Consolidations: A Synthesis [Internet]. Washington, DC: International Monetary Fund; 2020 [cited 2025 Jun 23]. Available from:
https://www.elibrary.imf.org/view/journals/001/2020/199/article-A001-en.xml

⁹ Abiad A, Furceri D, Topalova P. The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies [Internet]. IMF Working Paper WP/15/95; 2015 May 4 [cited 2025 Jun 23]. Available from:https://infrastructuregovern.imf.org/content/dam/PIMA/Knowledge-Hub/Publications/pubdocuments/The%20Macroeconomic%20Effects%20of%20Public%20Investment%20Evidence%20from%20Advanced%20Economies.pdf

¹⁰ Holdowsky J, Wolf M. The link between trust and economic prosperity [Internet]. Deloitte Insights; 2021 [cited 2025 Jun 23]. Available from:
https://www.deloitte.com/us/en/insights/topics/economy/connecting-trust-and-economic-growth.html

¹¹ Ray D. The aesthetics of accessibility: design for disability that’s dynamic not dreary [Internet]. Financial Times; 2025 May 31 [cited 2025 Jun 23]. Available from:https://www.ft.com/content/dda080df-5b2b-4239-9547-eed17701f200

¹² International Monetary Fund. IMF warns industrial policy no magic cure for slow economic growth [Internet]. 2024 Apr 10 [cited 2025 Jun 23]. Available from:
https://www.reuters.com/business/imf-warns-industrial-policy-no-magic-cure-slow-economic-growth-2024-04-10/