Last updated on April 6, 2015
This guest post by Jennifer N. Brass, assistant professor in the School of Public & Environmental Affairs at Indiana University, discusses the Trading Game, an experiment I run the first day of class in my intermediate microeconomics class. My original post on the Trading Game was my most popular post ever. You can follow Jen on Twitter at @jennifer_brass.
I teach an introductory undergraduate public policy course called “National & International Policy.” The goal of the course is to introduce students to the policy process, the range of actors involved in decision-making and implementation, and the political and economic factors that go into how policies are made and implemented. To highlight the tensions between the national policies of individual countries and international agreements, I focus one section of the course on international trade policy.
At the beginning of this unit of the course, we play the Trading Game. Like Marc, I go to the local dollar store and buy a wide range of trinkets, from toy cars to sidewalk chalk to Tupperware, sponges and bar soap. Some items are playful, others are useful. Some are neither.
Before beginning the game, I introduce basic trade policy terminology: exports and imports; trade surpluses and deficits; liberal and protectionist or isolationist trade policies; tariffs and other trade barriers.
With that, I distribute the trinkets by allowing students to draw one item from a bag without looking. Students announce what they have to the class, displaying it so that everyone can see it. I explain that they should not use (or eat) their trinket, as they will have an opportunity to trade for a different one. They publicly assign a 0 to 10 value to the items and we announce aggregate welfare (the sum of all trinket values in the class).
I then explain that they should each think of themselves as a country with goods to trade internationally, but that we exist in an international trade regime with some global treaties. First, we respect property rights and punish piracy stringently (i.e., no stealing). Second, we don’t have an international banking system to allow credit to enter the interactions (i.e., “I’ll do your stats homework next week if you give me your bubble wand.”)
The First “Aha!” Moment
Once trading has ended, I ask for a show of hands to see how many “countries” have traded. Usually about one third to three quarters of students have traded. We then assess the current value of each item to its owner and aggregate welfare is announced again. Voilà: Collective gains from trade! This is where students have their first “Aha!” moment; this week, aggregate welfare increased approximately 28% after allowing international trade.
Here, I add on to the game as Marc plays it. I ask students to take a few minutes to reflect and write on their experience as a “country” in an “international trade regime.” I ask them to think about what they started with, the value of that item relative to other items, their experience in trading, and the outcome they reached. I then show a map of the world, and ask them to identify a country whose real trade experiences correlate with the experience they have just had in the game, and to explain the relationship, thinking about what their trinket represents in the real world.
The Second “Aha!” Moment
This is where students have their second “Aha!” moment. Those who start with a useful, medium-value item (e.g., a generic Tupperware dish) usually successfully trade if they want to—getting Play-Doh or glow sticks or a deck of cards. Usually, both “countries” have things that are useful but each has more value to one of the actors. These students tend to self-identify as middle- or high-income countries like Chile, Spain, or Saudi Arabia—countries that have valuable goods for export, allowing them to import as well. A student who traded a bar of soap (initial value of 2) for a red pen (end value of 6) self-identified as Belgium, saying “We import more than we export, but we place a high value on the goods that we import.”
Some students in this group choose to keep their initial item. As one explained, after refusing to trade a noisemaker for her toy truck (value of 7), “I rejected the trade offer because I already have noisemakers at home. This makes me like Japan with technology—I don’t need other countries’ tech goods, because I already have my own. I can trade just for what I want.”
Students who start out with a relatively worthless item (e.g., a cheap, small, slightly deformed plastic toy cat), however, often try but fail to trade. Upon reflection, they often self-identify as one of the resource-poor countries of the world: Mali, Bolivia, Bangladesh. In their written reflection, they sometimes point to the injustices of the distribution of resources in the world. As one student said, “I started with a loofa and ended with a loofa. No one wanted it, so my experience wasn’t great. I’m like Rwanda. They don’t export much.” Another reported, “I started with a red noisemaker that I valued at 2. I tried to trade it for ramen, a wine glass, and a dinosaur, but no one wanted to trade with me. So I ended up with the same red noisemaker.” She likened her experience to that of Ghana, saying, “They are not a very industrialized nation, and there has been a shift in demand globally from primary goods to manufactured goods, so Ghana has trouble trading.”
We discuss these different perspectives from a variety of countries’ perspective. Afterwards, I ask the students if any of them feel they got a bad deal from the arrangement. Many do. Unlike Marc, I remind them that our aggregate welfare has increased in our liberal international trade regime, but point out that some countries benefit greatly and others do not. This year, one student actually lowered his valuation of a good after no one agreed to trade with him. Discussing a streamer and sparkle-filled magic wand, he wrote, “It’s like I’m a beautiful tropical island that’s really difficult to get to, so even though I’m awesome, nobody comes for vacation, and we don’t get the tourism revenues, so we’re still poor.”
Another student pointed out that the value of goods can fluctuate over time for other reasons. He started and ended the game with a packet of tissues. He said, “I didn’t want to trade with anyone because I’m in high demand of this good myself (as I have a runny nose). I valued it highly today, but if this had happened last week, I would have wanted to trade it.”
Inevitably, someone in the class ignores the rules or works the system, allowing us to discuss the international rules and laws that we set up, and the difficulty of enforcing international agreements without a global government. This week, a student started with a toy dinosaur, traded it for sidewalk chalk, opened the chalk box and proceeded to trade individual pieces rather than the entire set. He ended up with some chalk, a sponge, a ball, and a bar of soap by “diversifying his assets.” In his words, “I would be America because I made the system work for me, and I now have a surplus of useless things that make me happy.”
Sounds spot on to me.