Game Theory of Solving Poverty

Solving poverty is no game, but serious business. However, there’s a benefit to thinking about market systems in the terms of games like poker. Poker, for example, is what economists would consider a “zero-sum game,” because everyone enters the poker game with the same amount of money as everyone else and play until only one person holds all the cash.

No additional money has been created, but simply changed hands: in this case, creating one winner and lots of losers.

Many people incorrectly have the impression that creating markets and encouraging businesses to sell to the poor is a zero-sum game. They think that these businesses are the only winners, and that it does nothing to improve the incomes of people living in poverty.

That is so far from the actual case. Instead, iDE supports markets that economists would call “positive-sum games,” where additional wealth is created by the market players and there are multiple winners. For example, when a small-scale farmer can purchase a new water pump from a local agriculture dealer, not only does the dealer make a profit from the equipment sale but now the farmer is able to increase her harvest. Both make more income and both win.

But it’s really more than that. People who make less than $2 per day do not live in isolation, but often are part of communities where the majority earn the same small amounts.

So when a farmer increases her income or a dealer is able to make a profit in their business, they buy things in their community.

The farmer is now able to send her children to school (free primary education is not commonplace in Asia or Africa).

The dealer is able to expand his house with a new latrine.

This employs local teachers and masons, who in turn need to purchase food and housing. With their increased income, they often buy a bicycle, soap, or a TV. Everyone’s income and livelihoods increase.

When people ask me if the interventions that iDE engages in are sustainable, this is the kind of real-life scenario that I use to describe how our work is rooted in what people really want and how they use it to improve their lives.

I like to think of this as a super-positive-sum game, and it’s why I’m committed to iDE’s approach to solving poverty. We’re so positive this works that we make a promise to our donors that every $1 received by iDE will result in at least $10 in improved income for our market players.

We know this because we constantly measure it. And that’s only the direct income (the positive-sum), not the super-positive impact this investment has on the communities these people live in (which we haven’t figured out how to measure, or receive funding to measure…yet!).

iDE has been a referee for markets like this for over three decades, from our beginnings in helping entrepreneurs make and sell inexpensive pumps for farmers to our ground-breaking mobile management information systems supporting latrine business owners today.

Solving the world’s poverty problem is no longer a gamble, but an opportunity for all of us to be winners.