How zero-sum bias obscures the real problem with money

Zero-sum bias is the belief that you can only win when someone else loses. When it comes to finances, this simply isn't true.

How zero-sum bias obscures the real problem with money

If you’ve ever believed that you can only win when someone else loses—or that someone’s victory takes something away from you—there’s a good chance you’ve fallen victim to the cognitive bias known as zero-sum bias.

Of course, some losses are truly wins for others. Sports is an obvious example. But when it comes to topics like resource management and money, zero-sum thinking—a term derived from game theory—can be quite counterproductive on individual and societal levels.

Let’s unpack where zero-sum bias comes from, and then look at its implications for your financial well-being.

Life is all a game—sort of

Games are an essential component of human behavior. They drive societies forward and help to structure groups. At best, they push humans to excel in their chosen sport or business. They’re intellectually and physically stimulating.

Taking games too seriously, such as to the point of violence, is thankfully rare (and unfortunate when it occurs). Still, competition is a necessary aspect of being human, and games help us, and cultures, evolve.

People have been thinking about the nature of competition for a long time. Game theory is a wide-ranging field of studies primarily developed in the 1950s (with precursors dating back to the 16th century) that has greatly influenced the social sciences and economics. While the term covers an expansive range of behavioral traits, it now predominantly refers to the science of logical decision-making based on decades of research in cooperative and competitive games.

Zero-sum thinking is a component of game theory. Stated simply, my gain is your loss (or vice-versa). Unlike your favorite baseball team, whose wins really depend on another team losing, this bias can be damaging in terms of social relationships, individual psychology, and economics.

Let’s look at a real-world example. Discussing the idea that America offers equal opportunity for all citizens, the political strategist, Heather McGhee, spent three years traveling the country trying to understand disparities between perceived and real opportunities. Living in one of the wealthiest nations on earth, she asked one question: Why can’t we have nice things?

By “we,” I mean America at-large. As for “nice things,” I don’t picture self-driving cars, hovercraft backpacks or laundry that does itself. Instead, I mean the basic aspects of a high-functioning society: well-funded schools, reliable infrastructure, wages that keep workers out of poverty, or a comprehensive public health system equipped to handle pandemics — things that equally developed but less wealthy nations seem to have.

McGhee concluded that a lot of social issues are inflamed because of zero-sum thinking. Citizens feel that if someone else is winning, they must be losing. While that might be true in regard to the largest banks versus the common customer, it didn’t reflect the reality that most people in society experience. And yet we’re quick to blame people from other countries, genders, or political groups for systemic problems that actually impact everyone.

This is where zero-sum bias comes into play.

And now, your savings account

Unlike other cognitive biases, zero-sum thinking is not considered to be embedded in human psychology. Rather, it arises contextually. Such thinking is also not considered to affect individual behavior as much as it does group thinking—like that of sports fans. When contemplating in-group dynamics, however, this bias proliferates.

Unfortunately, as McGhee points out, American culture war issues obscure real systemic problems that most citizens could address. Instead, they default to charged assumptions that don’t reflect reality.

And so we think our loss is someone else’s gain instead of stepping back to investigate the problems holistically.

This isn’t only an American phenomenon. Let’s conclude this brief survey by looking at how it impacts personal finances.

One study of 37 nations discovered that countries with scarce resources tend to produce more zero-sum thinking. When people have access to fewer resources, there’s a general belief that fewer exist—thus increasing the competitive mindset.

In America and the UK, where resources are not scarce for the majority of citizens, zero-sum thinking still persists. Why is that?

Let’s look at the banking system. In both nations, interest rates have increased a number of times in the past few months. Yet those rates are not reflected in the savings accounts of their customers where, in America, the national APY average is just .59%. So while lending rates are skyrocketing—and the money being lent out by banks is provided by their customers—those same customers are not seeing much upside.

And so traditional banks enjoying the federal interest rate boost have not returned the profits to their customers. This helps feed the aforementioned competitive mindset: people feel like the banks are winning while they’re losing out. Instead of focusing energy at the root cause of this issue, we feel powerless to change the system, and so default to more tribalistic and protectionist behavior.

So the question isn’t really about resources—there are plenty of those—but about distribution. This is why zero-sum bias is contextual. In a society where resources and profits are evenly distributed, it won’t feel like a loss every time you checked your banking app—especially when you know major banks are enjoying record profits.

By taking our eyes from the larger structural issue, zero-sum bias instead causes consequential downstream effects. People, feeling as if trapped in a game they cannot win, are more likely to act competitively toward one another (as McGhee points out) instead of cooperating and focusing on the real issue—in this context, receiving their fair share.

In a society with so many resources to go around, that’s not the type of healthy competition we need. An equitable society would not produce the contexts needed to initiate zero-sum bias. Many people can win in this system without others needing to lose. We just need the will to create it.


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