A sideways look at economics
I’ve been told I can be very competitive. Having grown up with three siblings, I wouldn’t disagree. Last weekend however I more than met my match while playing a board game with my future in-laws. While I managed to clinch a victory, it was a little too close for comfort. So here I am, unashamedly using my slot for this week’s blog as an excuse to figure out the best strategy for the inevitable rematch.
The board game in question was Catan, a game in which players settle a small island. When you’re playing Catan – or any game, for that matter – there is a temptation to adopt a winner-takes-all mentality (or is that just me…). After all, the goal is to compete for resources to build roads and cities in a race to ten points. It’s a game that seemingly rewards aggression and clever manoeuvring, especially when blocking opponents or trading resources.
But this approach doesn’t work so well in practice. Imagine you’re sitting at the table with your in-laws. You strike a deal with your mother-in-law, trading your sheep for her wood, only to then put that wood to use by building a road which cuts her off from a prime settlement spot. She’s visibly annoyed, but you’re unfazed; this is how you win. You reject your sister-in-law’s trade offers because they benefit her more. You steal the resources of your father-in-law who is doing too well for your liking. Pretty soon you’ll find yourself fighting on all fronts, as your opponents seek revenge.
Alternatively, opting for cooperation can lead to substantial, mutually beneficial outcomes, and not just because it keeps you in the in-laws’ good books. For example, while players are able to trade resources with the ‘bank’ at a ratio of 4:1, they are also free to trade with each other on whatever terms they wish. As a result, cooperating players are able to use resources much more efficiently and grow a lot faster. Of course, with only one winner, players are aware that at some stage competition is inevitable. What seems logical therefore is a strategy focusing of tactical cooperation in the early stages with more overt competition once the game’s end draws near.
Unsurprisingly though, what seems logical in theory often doesn’t happen in reality, a problem that frequently frustrates economists. During the game with my in-laws, periods of cooperation were frequently interrupted by competition, making it difficult to regain the trust needed to cooperate again. This isn’t reflective of my relationship with my fiancée’s family – rather, Catan has mechanics intentionally designed to disrupt peace, whereby players are allowed to steal resources from an opponent if they roll a 7. The decision on who to steal from quickly becomes political, especially when your mother-in-law reminds you of the furniture they gifted you earlier in the day. Players can choose not to steal from anyone, but in the short run competing is more advantageous, regardless of their opponents’ current strategies, similar to the Prisoner’s Dilemma.
Robert Axelrod identified this problem in his paper ‘The Evolution of Cooperation’. When evaluating trade barriers between two countries, for example, each country has an incentive to maintain its trade barriers, because removing them unilaterally benefits its trade partner at the cost of its own economy if the gesture isn’t reciprocated – as China’s entry into the WTO proved. This leads to an equilibrium of suboptimal trade conditions, rather than of the mutual benefits of free trade. Axelrod puts it more simply:
“This basic problem occurs when the pursuit of self-interest by each leads to a poor outcome for all.”
To establish the best strategy to adopt in this scenario, Axelrod asked game theory experts to submit programmes for a computer-based Prisoner’s Dilemma tournament. Each strategy competed in repeated interactions to determine the best overall performer. It wasn’t an aggressive programme that won but rather a balanced programme, Tit for Tat, which starts with cooperation but also involves strategic retaliation, forgiveness and predictability.
Starting with cooperation means initiating fair trades and collaborative moves right from the beginning, setting a positive tone and encouraging others to reciprocate. Strategic retaliation comes into play when another player acts aggressively; responding in kind to deter future hostility. Even against a dominant opponent, retaliation in Catan is effective as it pushes others into alliances to maintain the balance. Forgiveness is equally important — if the aggressor changes their approach and offers fair trades or cooperation later, accepting this gesture helps to rebuild trust and maintain a cooperative environment. Finally, predictability in your actions ensures that other players understand that cooperating with you is beneficial, as you consistently respond to positive approaches with positivity and to retaliation with retaliation, fostering stable and long-term cooperation.
A key factor determining if cooperation will be sustained is the number of remaining turns players expect. In an infinitely repeated game cooperation is highly likely, as there is much more to be gained from long-term cooperation than from competition. Research has found that when agents anticipate repeated interactions, they are more likely to favour strategies that build trust and cooperation, knowing that actions will impact not just the immediate but the future.
Focusing on a single game of Catan, as players get closer to the ten-point goal the finite nature of the game and the dwindling number of turns remaining become more tangible. As the end approaches, the benefits of cooperating diminish because there are fewer turns left to reap the rewards of cooperation. Consequently, the incentive increases to openly compete. This grows stronger until the last turn, at which point there is no longer any incentive to cooperate since there are no future turns to consider. It will be assumed therefore that all players will compete on the last turn. As such, there is no point in cooperating on the second-to-last turn, knowing that competition is inevitable. This competitive mindset can spread to earlier turns, causing everyone to compete from the start. However, this didn’t happen during the game with my in-laws, despite the intense competition at times.
The reason for this was probably that the broader context of family game nights resembles an infinite game, rather than a series of finite ones. This wasn’t our first game of Catan, and players expect it won’t be our last. We are aware that our behaviour in one game influences interactions in future games (or even interactions outside the game if we play aggressively enough). This makes it valuable to players to maintain a decent reputation across games, and not to adopt a winner-takes-all mentality for individual games. I’ve put a ring on it, meaning my in-laws are here to stay – so I should really tone down the competitiveness on game night… in order to maximise my chances of defeating them in the long run of course.
