I really like this categorization. I’m not sure I fully agree, but it’s great to be exploring it.
It would be helpful for me if you could describe what parts of the stock market are positive-sum, and what parts are zero-sum. In one sense, every voluntary trade is (expected to be) beneficial to both—they each think they’re better off with the exchanged values. In another sense, every stock trade (with possible exceptions of initial funding or issuances) is zero-sum: the value gained by a buyer of a stock which rises is exactly the value lost by the seller.
I think of such games as “mixed”—there are elements and subgames which are fixed-sum, and others which are variable-sum, and optimizing among them is part of the overall outcome. “Cohabitative”, to my ear, is more about shared environment than about the kinds of in-game interaction and optimizations which are being made.
Example 1. I’m a software developer, and I get paid a lot of money because people want a lot of software. You run a manufacturing company that makes steel, a commodity that’s useful whether people want software or not. If I trade you a share of my software company for a share of your steel company, I get something that will be valuable even if later on people decide they don’t want software. If you trade me a share of your steel company for a share of my software company, you get something that will be valuable even if later on people decide they don’t want steel. Behold, by the power of diversification and the marginal value of money, we are both better off for trading with each other!
Example 2. I would like to become an apple polisher, but sadly I lack both apples and polish. You happen to have capital you would like to turn into even more capital. Thus, initial funding: you buy half the shares of my nascent apple polishing business, I get enough money to start polishing apples, and we both share in the profits. Behold, by the power of the Angel Investment we are both better off for trading with each other!
Example 3. I really, really think Loneay Uskmay companies are really cool and want some so I can talk about them at parties. You have some shares in Loneay Uskmay companies, because you wanted a really diverse pile of shares. While my trading strategy is weird, if we trade I can get to talk about my shares at parties and you can buy two different companies and diversify even further. Behold, by the power of differing preferences we are both better off for trading with each other!
(Warning: I am not a trading professional nor a serious economics teacher, an environment being cohabitive does not preclude the environment taking you for everything you’re worth if you let it.)
All of those are, to my view, positive sum.
Example A. We are both high speed traders with a sophisticated idea of value. Bob wanders into the stock market looking to diversify; he’s pretty cheerful about paying an extra five cents on the dollar to turn his software shares into steel shares. Me and you are in a zero sum race to get Bob’s business. Any profit we seek has to come out of Bob’s offered five cents.
Example B. I have realized that the complicated financial instrument on the housing market is, in fact, a terrible instrument and it’s value is going to fall from a hundred dollars to one dollar pretty soon, or rather it’s value should be one dollar but everyone was wrong about that and had bought it for a hundred. I give you a call and tell you about this wonderful deal I have for you, I’m cutting my own throat really, but since you’re an old buddy I’ll sell it to you for eighty dollars. That’s an intensely zero sum game that’s actually trending towards negative sum.
(Econ majors or actual traders, feel free to point out any errors I’m making here.)
Example 4. The management of Generic Corp is missing out on a huge opportunity. So I buy a bunch of stock, use my voting power to advocate for a new set of policies that would churn out nicer widgets at a lower cost. Generic Corp stock goes up, then I sell it at a profit.
I really like this categorization. I’m not sure I fully agree, but it’s great to be exploring it.
It would be helpful for me if you could describe what parts of the stock market are positive-sum, and what parts are zero-sum. In one sense, every voluntary trade is (expected to be) beneficial to both—they each think they’re better off with the exchanged values. In another sense, every stock trade (with possible exceptions of initial funding or issuances) is zero-sum: the value gained by a buyer of a stock which rises is exactly the value lost by the seller.
I think of such games as “mixed”—there are elements and subgames which are fixed-sum, and others which are variable-sum, and optimizing among them is part of the overall outcome. “Cohabitative”, to my ear, is more about shared environment than about the kinds of in-game interaction and optimizations which are being made.
Example 1. I’m a software developer, and I get paid a lot of money because people want a lot of software. You run a manufacturing company that makes steel, a commodity that’s useful whether people want software or not. If I trade you a share of my software company for a share of your steel company, I get something that will be valuable even if later on people decide they don’t want software. If you trade me a share of your steel company for a share of my software company, you get something that will be valuable even if later on people decide they don’t want steel. Behold, by the power of diversification and the marginal value of money, we are both better off for trading with each other!
Example 2. I would like to become an apple polisher, but sadly I lack both apples and polish. You happen to have capital you would like to turn into even more capital. Thus, initial funding: you buy half the shares of my nascent apple polishing business, I get enough money to start polishing apples, and we both share in the profits. Behold, by the power of the Angel Investment we are both better off for trading with each other!
Example 3. I really, really think Loneay Uskmay companies are really cool and want some so I can talk about them at parties. You have some shares in Loneay Uskmay companies, because you wanted a really diverse pile of shares. While my trading strategy is weird, if we trade I can get to talk about my shares at parties and you can buy two different companies and diversify even further. Behold, by the power of differing preferences we are both better off for trading with each other!
(Warning: I am not a trading professional nor a serious economics teacher, an environment being cohabitive does not preclude the environment taking you for everything you’re worth if you let it.)
All of those are, to my view, positive sum.
Example A. We are both high speed traders with a sophisticated idea of value. Bob wanders into the stock market looking to diversify; he’s pretty cheerful about paying an extra five cents on the dollar to turn his software shares into steel shares. Me and you are in a zero sum race to get Bob’s business. Any profit we seek has to come out of Bob’s offered five cents.
Example B. I have realized that the complicated financial instrument on the housing market is, in fact, a terrible instrument and it’s value is going to fall from a hundred dollars to one dollar pretty soon, or rather it’s value should be one dollar but everyone was wrong about that and had bought it for a hundred. I give you a call and tell you about this wonderful deal I have for you, I’m cutting my own throat really, but since you’re an old buddy I’ll sell it to you for eighty dollars. That’s an intensely zero sum game that’s actually trending towards negative sum.
(Econ majors or actual traders, feel free to point out any errors I’m making here.)
Example 4. The management of Generic Corp is missing out on a huge opportunity. So I buy a bunch of stock, use my voting power to advocate for a new set of policies that would churn out nicer widgets at a lower cost. Generic Corp stock goes up, then I sell it at a profit.