Free trade has long been hailed as the world’s answer to increased competitiveness, greater overall wealth and a higher standard of living. Adam Smith’s ideas on the foundations of capitalism assert that open market policies lead to global economic growth, and conversely that protectionist measures stunt growth and inflate prices. Critics argue that protectionism helps protect developing markets and industries and prevents unfair competition. But in the debate over trade which economic policy is actually best?
To answer this question I conducted an experiment using the board game, The Settlers of Catan, as an economic model.
I isolated trade as a variable and looked at what effect the frequency and magnitude of trade had on resource and point accumulation within the game. I collected data for 10 games where trade was allowed and 10 games where it was forbidden, attempting to identify an empirical contrast between the two versions. What I found is that no-trade games consistently out produced freetrade games in terms of both point and resource accumulation, and that there was no correlation between trade and either total points or total resources.
I also found that despite being given the option to trade, players would frequently reject seemingly fair offers and instead pay a higher price for resources through the in-game bank. I reasoned that this behavior was a result of players trying to maintain or extend their competitive advantage, which they were able to do by maximizing their utility, or value gained, for the game as a whole rather than at any one specific stage in the game. This explains why trading was so rare and why no-trade games outperformed full-trade games in the experiment. The significance of this result can be especially felt in the labor market, where labor is a resource traded by workers to their employers. I use the recent NFL and NBA lockouts as case studies to show how utility maximization behavior can be applied to real world economic situations.