Blog 40: Zero Sum Fallacy by Xavier Lo, FIA, FRM, MBA

Think about the last time you had a bet [賭注] with someone. Or maybe a time when you accidentally paid too much in a shop. In both cases, you can clearly see that there is a “winner” and a “loser”. The winner won exactly the same amount that the loser lost. We call these cases a “zero-sum game” [零和遊戲] because you can’t have someone winning without someone else losing.

However, can we only always just win at someone else’s expense? If you thought yes, then you might be prone to the zero-sum fallacy [零和謬誤]. As you can tell, it’s a fallacy, which means that its not always going to be true. Lets say you were negotiating your salary [討論人工]. Your company obviously wants to pay you as little as possible to save money, so if you asked for a higher salary, the company “loses” in terms of money. The opposite is true, if you get a lower salary, you’re the one who loses. These aren’t the only two options though. What if instead of asking for more salary, you asked for more annual leave [年假]? Or maybe flexible working hours [彈性上班時間]? Or alternatively, what if the company paid you more and you became a lot more productive [更有效率] as a result? In all of those cases, you can see how both you and the company can benefit, and we can have two winners.

The reason why this zero sum fallacy is dangerous in insurance is because it automatically makes everyone else your enemy by default. You will automatically think its “us versus them” [我對你], but in fact, there might well be lots of solutions which benefit all parties involved. Just because you reduced the premium for a customer doesn’t mean you lose out – they might be more loyal, or extra referral business. Think about wider implications.

Being aware of the zero sum fallacy can help you out even in simple situations such as arguments with friends. Its much better to have a solution where you are both happy – you don’t always have to make them feel like a loser!