What Basic Game Theory Teaches Us About Startups

TL;DR

Zero-sum games (e.g., gambling) provide upside directly from another player losing; positive-sum games create lasting value (e.g., building a house). People often fool themselves into playing zero-sum games because of FOMO or a belief that superior intelligence justifies winning at others’ expense.

Key insights

• In a zero-sum game, the winner’s gain comes directly from the loser’s loss; no new value is created.
• Gambling is a textbook zero-sum game that exploits an inherent psychological flaw: the appeal of disproportionate reward without proportionate effort.
• Many activities that resemble gambling (e.g., confidence games, selling bad debt to unsuspecting buyers) are legally or socially accepted but are still zero-sum.