An Economist Plays Monopoly

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A few days ago, I appeared on NPR Morning Edition talking about Monopoly (the game, not the market form).

Until then I hadn’t thought much about the economics of the game (which I played very often as a child, with our sons and for the past five years with our grandchildren).

Monopoly teaches us some useful economic lessons:

  1. The very first event illustrates the diversity of people’s utility functions – I like the “Top Hat” piece, but others may prefer the racing car or the Scotty dog.
  2. With only $1500 to start, you can’t buy everything you land on. This requires constrained utility maximization. (I never buy railroads or utilities early in the game, since I believe the payoff per dollar is less than buying a regular property.)
  3. You need to optimize dynamically, since you should retain money to build houses and keep enough money to avoid bankruptcy if you land on others’ properties before they land on yours.


Surely the most important lesson from Monopoly is that, due to a mixture of skill and luck, one or two players end up with all the assets, leaving the rest to limp around the board hoping to avoid trouble.

Remind you of the current economy?

And the ONLY solution is to restart the game. But since that's "socialism," we can't have that, can we?


Actually, the key is to purchase as much property as possible (including railroads and utilities) to diversify your portfolio of income stream. Imagine the position of the other players' pieces as indicators of how well a particular geography of the board is doing. If all the other players are on the south side of the board, you better hope you have some property there, even if it's a low-paying railroad.

If money is tight when having to pay others, you can always rent your own property to the bank (mortgage?) to get a temporary loan.


I've always found the best strategy in monopoly is to buy everything you land on (and everything you can afford at auction).

Even if it means having to mortgage some properties you've already purchased. Every property you buy gives you one more safe spot on the board, and might prevent another player from getting a monopoly.

Jonathan Weinstein

Actually, you should buy everything you land on early on. You have more liquidity than you think, since you can mortgage properties at will...the penalty when you unmortgage is pretty small. Buying a property you are likely to mortgage is like buying a very cheap option. Even in the *worst* case that you are quickly forced to mortgage it and collect no rents, you are better off than if you paid rent to an opponent just a few times. Buy everything.

The railroads definitely more than pay for themselves. Not buying railroads is a *big* mistake. Of course other monopolies have more long-run potential; but if each player has one colored monopoly and one has railroads also, the railroads will win almost every time.

Calvin Graham

Of course, if you play with more people, the game becomes as much about "buy everything you land on while it's there" and then the game becomes about negotiating and dealing skills as much as utility maximization for your dollar.

Basic as it is, Monopoly can be made complicated very quickly if you agree to join ownership agreements between players and insurance options. The comparison to the real world of credit derivatives and financial products thus makes it as relevant to today's exotic financial world as it was to the one when it was first released


The most important lesson from Monopoly is that of information asymmetry. Someone who knows the probability of landing on each group is very likely to trade Mayfair (Boardwalk) away for a seemingly much less lucrative orange or yellow monopoly.

Of course while the rent is lower, it's far more likely a competing player will land on either the orange or yellow groups, and it's cheaper to build houses, meaning the player will have hotels up much quicker than the player who thought they got a "good deal" getting the high-value indigo Monopoly will be able to.

Drill-Baby-Drill Drill Team

Monopoly is really a Real Estate Game in a Frothy Property Hungry Market with Easy, No Doc, No Interest, No Down Payment, Variable Interest Rate, Sub Prime Loans.

In Reality, Property Owners pay 5% Property tax rates which rise 1% oer year, have HUGE interest payments, have to pay maintainance as lawn care and re-roofing, and suffer a declining 30-40% in property values and then have to spend 10% of the time on the phone trying to get through to their lender.

Bobby G

A couple of other Monopoly principles:

-Investment allure: maybe it's commonly accepted as general game strategy but the purchase of any property landed upon early in the game is prudent not because of the small chance of getting some early landed-on fees from other players, but for the future value, for example, as part of a "team production" monopoly, where the value of the group (far) exceeds that of the individual properties. Leading into another principle...

-Investment diversification: having a hand in many pots doesn't directly hedge bets like in an investment market, but I think an extrapolation could be made that with more properties there is a higher chance of being the final piece in someone else's puzzle, thus garnering a premium for a property. Perhaps not all properties will be extremely valuable, particularly when the color is owned by 3 or 4 players, but get enough different properties and there's a higher chance you get such a good deal on one that it pays for all of the other chances taken.

I'm pre-coffee this morning so there's probably more, but I'll let these ride for now :)


Mike B

Like real life there is a strong advantage to being a smart person who actually bothers to run the numbers. So like a hedge fund manager just do your homework and beat the pants off of your opponents. The homework is this simply guide to optimal play at Monopoly.

Michael Ellis

I think it's wrong that only one company makes the game Monopoly.

Stirling Newberry

Railroads have among the best return for the dollar, in part because they are landed on more frequently. The orange block, because it has both 6 and 8 from jail, is another very important block to buy into to prevent it from being developed.

Buy earlier is good strategy, because either you have a chance of a block, or when blocks start forming, you have a higher chance of having something to trade or sell.

Which brings us to why there are so many broke economists...


Most of these posters are correct, of course. Passing on property is almost always a bad idea, because the person with the most property has (1) the greatest likelihood of acquiring a monopoly by sheer chance (2) the most leverage to trade for a desireable Monopoly should chance fail and (3) the greatest likelihood that others will land on your property while you're scheming to aquire a monopoly, the increasing revenue streams.

I was particularly struck by the aversion to buying railroads. They offer the highest ROI early on in the game when revenue is most important (later on in the game you can clearly make more money on "buildable" properties, but hopefully by then you've been smart enough to trade your railroads up to more lucrative investments). You can spend 600 dollars on 3 RRs, and have three spaces on the board that can each earn you $100 dollars (and for which there are a number of assured hits per game, and even a couple chanes at doubling revenue, given the chance & community chest cards). If you owned, say, the orange properties, you'd pay $560 just to acquire the properties, then another $300 just to build 3 houses - now you've spend $860 in exchange for two chances at making $70 and one chance at making $80.

As i mentioned, the equation changes as the game moves on, but its not likely that you'll have the revenue stream to build new houses (thus changing the equation) if you haven't diversified your holdings early on in the game.



It always seems like people land on the green and blue properties less than the others. Maybe because there are more opportunities to skip ahead or go to jail prior to reaching that side of the board? I've never figured it out.


"Someone who knows the probability of landing on each group is very likely to trade Mayfair (Boardwalk) away for a seemingly much less lucrative orange or yellow monopoly."

It's not just about probability of landing- expected return is far more important. Because of the high return for its houses the Boardwalk monopoly is actually the best investment on the board, followed by the orange (New York Avenue).

My usual strategy is to aim for a railroad monopoly (i'll pay premium for those. Passing on railroads is foolish) and work for either the orange or boardwalk.


I have the most fun running auctions and trying to get others to overpay for the property ! Hey wanna buy Rockefellar Center?


I'll jump on the railroad bandwagon here, as well. Due in part to several Community Chest and Chance cards which increase the likelihood of landing on a railroad, Reading and B&O are two of the five most frequently hit spaces on the board. Furthermore, some of those cards force the unlucky person to pay double rent. While a single railroad may not be very profitable, neither is a single colored property, and having three or four railroads is cheaper than getting a set of colored properties and paying for three houses on each (the point where the most significant increase in rent income occurs), so the initial investment is lower.

Ike Solem

Actually, Monopoly can be made into a great teaching tool about the role of finance if you modify it slightly, by allowing each player to also be a banker, and turning the bank into a central bank.

Monopoly in its original form has at least two major differences from the current economic model - first, all transactions are in the form of cash or property, never in the form of credit, and second, the bank is already a monopoly.

In this modified version, the "bank" now takes the role of a central bank, and is assumed to be a neutral entity - it works just like the bank in the traditional Monopoly game.

Players now have the opportunity to obtain lines of credit to purchase and upgrade property, or to pay off rents and fines if they are strapped for cash - or to make loans to other players (loansharking will be rampant). The leverage ratio can be set however you like - say, for every dollar in real assets that the player has accumulated, they can obtain five to ten dollars in credit, depending on rates set by the central bank. Then, every turn, they must make a payment on their loans - every time they pass Go. If they can't make the payment, they are in default, they go bankrupt, out of the game - like Bear Stearns and Lehman Brothers.

Now, one can start to grasp the role of the central bank, that is the Federal Reserve. The amount of leveraged money each player has access to is ultimately set by this institution. The assumption of the neutrality of central banks is widely disputed, by the way.

At this point, one can merge this modified version of Monopoly with the game of Risk, and then the role of banks in financing international conflict becomes more clear.

Let's say that in Germany, you develop monopolies in the coal, steel and chemical industries, as well as in the Monopoly staples: real estate, utilities and railroads. You can now direct the monopoly to build a big army, and go on an empire-building spree. If your opponents do not follow a similar strategy, your armies can overrun them. In the real world, this approach requires the subservience of the individual to the state - farmers and engineers and doctors will not mobilize to invade their neighbors on behalf of some remote dictator without some degree of compulsion.

Now, this complex hybrid of Monopoly and Risk will need a good name - something catchy and marketable - "20th Century History?"


Gregg Tavares

The lesson I always took from Monopoly is that if one person owns everything the game is over. No more fun.

William G

I'm surprised at the number of comments already; it looks like this game is quite a pastime.

I am shocked at the low quality of Hamermesh's posts. I never feel like I'm learning something Freakonomics when I read this posts. "The very first event illustrates the diversity of people's utility functions - I like the "Top Hat" piece, but others may prefer the racing car or the Scotty dog." -- seriously? Let's move past kindergarten, please.

Second, if you really want to go hardcore into Monopoly, study the papers:


The only thing to learn from Monopoly is what a freaking terrible game it is. Give me Settlers of Catan or Ticket to Ride any day.