What Basic Game Theory Teaches Us About Startups

**Michael Seibel** (0:00)
They never get the lessons in little dabs along the way. Like, you know, as kids, we're used to getting these little lessons along the way. For these zero-sum games, often the lesson just comes fast and hard at the end. It's like, boom.
This is Michael Seibel with Dalton Caldwell. And today, we're gonna talk about the problem with zero-sum games. So we were chatting, Dalton, and we've seen a lot of zero-sum games kind of in our lifetimes. It seems like it's something that comes and goes pretty often.
Why don't we start with kind of the first time you've encountered a zero-sum game and almost like how you got trapped by it?

**Dalton Caldwell** (0:44)
Yeah, so just to start with definitions.

**Michael Seibel** (0:47)
Please.

**Dalton Caldwell** (0:49)
A zero-sum game is a game that you play where the upside that you're getting comes directly from the other player. So if we're talking about money, a classic zero-sum game is we make a bet.
And so say we bet, you know, 20 bucks, something will happen, and you win. The money that you win comes out of my pocket. There's no new money that's created in the system. It's zero-sum. So whatever you gain, I lose, and it all equals out to zero, okay? That's zero-sum.
A positive-sum game is where something happens and as a consequence of it, value is created that lasts for a while. And so say that we decided to do something for fun and we built a house. We're like, it'd be fun to build a house. And so we do the thing, and then when it's all said and done, the house exists. Our labor produced something that will last, that wasn't there before.

**Michael Seibel** (1:48)
And we can charge rent for it, and maybe generate some income.

**Dalton Caldwell** (1:51)
Yeah, exactly. So we were entertained in both scenarios where we made a bet versus built something. And in one of those scenarios, we made something that lasts, and the other one, it was just a zero-sum form of entertainment.
So the most common thing, of course, I even had to use it for the example, is literally gambling. Literally gambling is like the textbook zero-sum game. If we play poker, the money that you win came out of someone else's pocket.

**Michael Seibel** (2:21)
Unless you're the house, which that's the actual good business.

**Dalton Caldwell** (2:28)
And it's wild. Gambling is fun.
Maybe not for everyone, but what's your experience with this stuff?

**Michael Seibel** (2:38)
I find that gambling trips one of these things in everyone's brains that makes them feel good, but it's probably bad for them. And I think there are a lot of things like that we encounter in the world, right? Let's say sugar is like that.
Nicotine is certainly like that. I would say that social media kind of triggers that feeling of not wanting to put it down.
And gambling is another one of those things. I would almost say that it takes advantage of an inherent flaw in our programming. And I think that flaw has something to do with getting disproportionate wins without the perception of doing disproportionate amount of work. And I almost sometimes imagine that there's got to be some prehistoric proto-human where that was like heaven, right? It's like if you can somehow windfall into a dead buffalo and you didn't have to risk your life killing it, like bam, that's like huge, right? And I think that unfortunately in today's age, it tends to kind of happen in these ways that aren't as good, a la gambling. A la the other part of what you're saying, the darker part of saying is in order for me to win, you have to lose. But what's weird is that there are a lot of things that kind of resemble gambling, but that people don't call gambling, right? Like what are some other examples of quote unquote gambling out there?

**Dalton Caldwell** (4:11)
Well, think about it. Okay, so poker is a game I played a lot. I'm sure you have to. And in poker, the rules are it's okay to bluff, and you're rewarded. Like the game is to manipulate other people around you to do dumb things.
It's not hard to take one extra step to do that kind of behavior outside of poker. And so there's a whole variety of both legal and non-legal confidence games where essentially the way you win is to manipulate people and get them to do what you want when you want them to do it through any means necessary.
And yeah, I think that is rough. And a lot of people do some version of that. I guess we maybe we all do to some small extent, but some people really take that to the extreme of making their entire living by fooling other people, more or less.