Tuesday, June 24, 2008

How early can you voluntarily trade?

Daniel Hamermesh asks whether a two year old can really grasp the free market. My inclination is to say, 'yes,' but perhaps not in the way he might be thinking. The issue is strategies 2 year old's employ when it comes to disputes over property rights. This usually involves a toy that is scarce relative to demand.

I watched the behaviour of all three of my children in child care over this issue. Child No.1's strategy was this. When she had a toy if anyone who had a prior reputation for expressing a wish to relieve her of it would come near, she would scream her head off. The would be predator would be driven away but, suffice to say, some loss in trade efficiency would occur.

Child No.2, on the other hand, avoided conflict. At a very young age, he worked out that it was worthwhile just giving the other child the toy. He knew that within minutes it would be disguarded and he could retrieve it. I used to watch this in amazement. Literally, as soon as the toy was abandoned, he would swoop in and regather it. It was a model of conflict avoidance and in many respects a perfectly acceptable matching of needs and wants.

But Child No.3 has trade down. With two others in the household to contend with, when someone else expressed a desire for a toy, she would be reasoned with and accept a deal to exchange that toy, if only for a time, in return for something -- usually the offer of another activity or some attention. But she would only do it voluntarily with some upside to the deal for her.

The upshot of this is that I think that voluntary exchange and observed equilibrium behaviour amongst two year olds is an experiential thing. Hmm, just the same as for everyone else.