A "zero sum game" is a game whose result is zero. Microeconomics theory states: A mathematically fair game is one for which the expected value is zero. The rationale behind the theory is that if you play a fair game, such as a coin toss with a 50/50 probability, repeatedly, you may end up winning or losing, depending on your luck, but the average gain or loss per play, calculated over all plays, will tend towards zero as time passes. Therefore, based on the theories of microeconomics, it can be concluded that a "zero sum game" is also a fair game.
Gambling, analysed from the perspective of all the gamblers together (as a unit), can also be viewed as a "zero sum game," and thus, is a fair game. That would mean, as long as all the players are on the table gambling, at any point of time, the outcome of the game is zero, since the total losses of the table is exactly equal to the total winnings of the table.
In other words, the gamblers as a unit neither gained nor lost, even though there were individual winners and losers within the unit, as chips from one player moved to another, depending on luck, but the total amount of chips in play remained the same.
However, a little more than luck is required if the type of gambling calls for a certain level of "decision making" on the part of the player, which may alter the outcome of the play.
For example, card-counting skills, depth of funds, and experience, in addition to pure luck, are some of the common traits of the regular winners of card-based games (i.e. Poker, Black Jack, Flush etc.) Nevertheless, even for these types of games, the outcome is still zero from the perspective of the table.
In reality, however, with the exception of simple coin-toss type games; there are no pure "zero sum games" due to the existence of costs and spill-over effects.
However, in most cases involving gambling the outcome is still close to zero, since the costs of gambling under normal circumstances is usually negligible.
Interestingly, the trading of financial securities in the exchanges also falls under the concept of "zero sum game." It is also not unlike gambling, as I see it, particularly in less regulated markets such as ours. For example, let us consider the trading of stocks in the Dhaka Stock Exchange (DSE) or The Chittagong Stock Exchange (CSE). The average transaction cost, though varying across brokerage houses, is well below 1%, and in some cases, as low as 20 basis points.
Many players, ranging from the petty investor punting rent money and hoping for a quick return before the landlord knocks, to large financial institutions with access to unlimited (relatively speaking) long-term funds.
Novice investors with no knowledge or experience, seasoned brokers, and management of listed companies armed with insider information participate in this form of trading on a regular basis.
At the end of the day, the winners are those who catch the direction of the market and gains from those on the other side of the trade. It should not be difficult to guess who are the players winning most of the times.
However, the amount of total loss of all the investors on the wrong direction is equal to the gains of those who were on the right direction (net of transaction costs).
The company behind the listed stock has no direct or significant benefit from a high market price or high transaction volume or both. The only direct beneficiaries are the stock exchanges and the member brokers as they are the only ones assured of income/revenue regardless of market direction.
The rest of the participants gamble/speculate to take chips/funds from one another in a market void of any reliable research and open to rampant and unabated insider trading.
We all know the cardinal rule for investing in the stock market: "Buy low, sell high." The problems with that rule is that if everyone wants to buy low then there would be no sellers, and vice versa.
The players on the wrong side of the trade have only themselves to blame, given the fact that, according to the concept of "zero sum game," trading is a fair game.
It would not be an understatement to label the DSE/CSE the only legal casinos in Bangladesh, since the activities in our stock exchanges are so strikingly similar to that of a gambling den.
Therefore, as strange as it may sound, investing in the stock exchange of Bangladesh with a gambling perspective could be a profitable strategy, at least for the near future.
Asif Anwar is a freelance contributor to The Daily Star.