Welcome to Money for the Rest of Us. This is a personal financial show on money. How it

works, how to invest it, and how to live without worrying about it. I'm your host David Stein

today is episode 432. It's titled Are the Economy and Financial Markets Zero Some Games?

One of the most thrilling and heart-wrenching aspects of sports, particularly annual NCAA

basketball tournaments, is watching a team come from behind and win in the final few seconds.

There's the sheer joy and delight of the winning players and fans, and the shock, disbelief,

and even tears of the losing players and fans who realize their season is over. I recall

attending an NCAA tournament game with my father's alma mater Xavier University, being

in the stands with him and seeing the opposing team make a last-second shot, and the roar

of the crowd for the other side and disbelief in seeing our team lose. A basketball game

is a zero-sum game. In order to have a winner, there must be a loser. Federal Reserve economist

Eric R. Nielsen describes a zero-sum game as follows. Mathematically, a zero-sum game is

one in which the sum of all the games and losses made by all the players must be zero.

This is the familiar idea that one man's loss is another man's gain. Nielsen gives an example

of a game of poker, where the total amount of money in the pot at the end of the game

is the same as at the beginning. Money made by one player with a winning streak comes

at the expense of the other players. There are some aspects of financial markets that

are zero-sum games. Trading commodity futures, for example. If I go long oil expecting oil

to go up in price, and if the price of oil rises more than the price of the futures contract

when I initiated the trade, then I'll make money. But that money that I earn comes from

the trader or traders on the other side of the trade, who were shorting oil, speculating

that it would fall in price. The zero-sum game of commodity futures of currency trading

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