I was pleasantly surprised to see that one of my favorite political and economic writers, P.J. O’Rourke, had penned an Op-Ed piece in the Dec. 27, Wall Street Journal on one of my favorite popular misconceptions—the zero-sum game—titled: “Dear Mr. President, Zero-Sum Doesn’t Add Up.” Politics aside, Mr. O’Rourke’s typically lucid deconstruction of this pervasively held notion is just as important to the advisory world as it is to macroeconomics.
Simply put, Game Theory creates mathematical models to capture what most folks have realized for eons, but which seems to have escaped academicians: namely, that successful strategies cannot be based on logic alone, but must consider other people’s responses to one’s moves. (I know, this seems painfully obvious to most of us, but consider Congress’ continual failure to consider changes in taxpayer behavior when it projects future revenues from new taxes, and is then “shocked, shocked” to find the actual revenues from said taxes to be far less than expected.)
One of the most popular ideas to come out of Game Theory is the notion of “zero-sum” games; that is, games in which when one side wins, the other side has to lose. Chess, for instance, or football, such as last Sunday night’s Cowboys-Redskins Game (is it just me, or is there something wrong here somewhere?), after which Washington gets to go to the playoffs, while Dallas gets to watch them on TV.
But in other games, the notion of a winner and loser isn’t so clear-cut: If Tiger Woods gets into a playoff with Rory McIlroy in this year’s Masters Tournament, in which, for playing four days of golf, one of them will take home $1.5 million while the other gets $1 million, it seems a bit of a stretch to call one “the winner” and the other “the loser.” Of course, life is full of these non-zero-sum, win/win situations.
In his WSJ column, O’Rourke calls out the current notion that our national (and global) economics is a zero-sum game in which “rich” people are the winners, at the expense of “not so rich” people, who are the losers. “The message is that we live in a zero-sum universe,” he wrote. “[That] There is a fixed amount of good things. Life is a pizza. If some people have too many slices, other people have to eat the pizza box. You had no answer to [the] argument for more pizza parlors baking more pizzas. The solution to our problems is redistribution of the pizzas we’ve got. In this zero-sum universe there is only so much happiness. The idea is that if we wipe the smile off the faces of people with prosperous businesses and successful careers, that will make the rest of us grin.”