STEVE INSKEEP, Host:
During the housing bubble, investors threw cash at real estate like it was Monopoly money. That's an obvious metaphor. But our Planet Money team is wondering if it's more than a metaphor. Generations of kids have been raised on the board game Monopoly. They spend hours accumulating houses and hotels.
NPR's Robert Smith and two economists investigated the lessons we all learned from those years of passing go and collecting $200.
ROBERT SMITH: You think a regular Monopoly game takes forever? Try playing with professors. Just picking out the game tokens prompts a lesson in choice theory.
DAN HAMMERMESH: It illustrates a tremendous diversity of preferences across people, even in something as mundane as this.
SMITH: Translation: I am the only one who wants the little Scotty dog.
HAMMERMESH: I'm Dan Hammermesh, professor of economics at the University of Texas at Austin, and I'm a top hat guy.
SMITH: And our other player is Russ Roberts, a professor of economics at George Mason University.
RUSS ROBERTS: And I'd prefer the car if I can get it.
SMITH: Time to roll.
(SOUNDBITE OF ROLLING DICE AND BOARD GAME PIECES)
SMITH: Both professors have played monopoly since they were children, but with very different takes on the game. Hammermesh avoids buying utilities and those nasty green properties. Roberts will snap up anything he lands on. Hammermesh finds plenty of positive lessons for children who play the game.
HAMMERMESH: You learn decision rules. And maybe a little bit of optimizing under constraints, 'cause the 1,500 bucks, you've got to make choices, and learning, for example, with 1,500 bucks not to go buying railroads as Russ just did.
(SOUNDBITE OF LAUGHTER)
SMITH: Oooh. Economic trash talk.
HAMMERMESH: I couldn't resist. I'm sorry.
SMITH: Meanwhile Russ Roberts, the proud owner of the Pennsylvania Railroad, has a pretty low opinion of Monopoly. He's written about how it presents a warped view of capitalism. There's no innovation. There's no mutual benefits. It's all about grinding your opponents to dust.
ROBERTS: In Monopoly, a roll of the dice forces you to pay large sums of money to a landlord who you don't know. And you're stuck losing money with no gain. The landlord gains money at no cost, and that's a very unrealistic lesson.
SMITH: Yeah, but that doesn't stop Roberts from trying to cream the rest of us.
Here we go.
ROBERTS: Give me that 10, baby; 10, baby.
SMITH: You've got 10?
ROBERTS: Oh yeah
SMITH: Thinking about the educational value of Monopoly is not the strangest exercise. The precursor of the modern version of the game was designed to teach lessons about the economy. It was called the Landlords Game, patented in 1904. And it was used to demonstrate how property owners could bankrupt their poor tenants.
HAMMERMESH: Oh dear. Yeah, take it out of my pocket.
SMITH: Later, Parker Brothers put out its version, now called Monopoly. In the new game, driving people out of business was a good thing.
ROBERTS: I need a big number or I'm out.
SMITH: But when you look at the game after a housing bubble has burst, the rules of Monopoly seem like a sure way to crash an economy. The bank can never run out of money. Mortgages, easy to get. And when you build houses, the rent always goes up.
ROBERTS: You might learn if you're good at Monopoly to think that real estate's a really good investment, a strategic insight that would have served you very badly, at least recently.
SMITH: At this point in the game I am way behind. Professor Roberts has Park Place and Boardwalk. Professor Hammermesh has more new houses than an Arizona suburb.
HAMMERMESH: This illustrates irrational exuberance.
SMITH: And we're all running out of cash. And this is when those old stodgy Monopoly rules go out the window. Everyone starts wheeling and dealing. Roberts offers up a share of the income from one of his properties.
ROBERTS: It's a sure thing, its Triple A.
HAMMERMESH: I view it more like a Greek - it's a Greek government bond. I'm afraid I can't take it.
SMITH: It turns out when you bend the rules, Monopoly starts to feel like a very shrewd educational tool. Now we're negotiating. We're thinking creatively. Roberts, for instance, offers to bump up the rent on Mediterranean Avenue if I just take it off his hands.
ROBERTS: The rent will not be the stated 250, it'll be 750.
SMITH: Wait, can you do that?
HAMMERMESH: Not legitimately, but at least it does show the kind of independent creative contracts that can be created in the real world, then in this game.
SMITH: At this point the economics professors start talking about using options pricing theory and computer simulations to figure out the proper value for such a contract. And in the end we learn that classic Monopoly lesson. When you talk too much, you run out of time and you never finish the game.
Robert Smith, NPR News, New York.
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