 So, if my role of a four gets me enough wheat so that I can combine it with the ore that I already had in my hand to turn a settlement into a city, would that mean… nice. I've extolled the virtues of board games before. They're fun, they're engaging, and they're usually a great way to make friends. They can also occasionally be a great way to lose friends. Yes, I'm talking about Settlers of Katan. Settlers is a standard in board gaming where you compete with other players to build cities on an island by gaining and spending resources which you trade with them. Or maybe resources which you refuse to trade with them. Every trade that you make with another player for a resource that you need gets you that much closer to building enough cities to win. But it might also be furthering their agendas. From a purely quantitative perspective, if you want to maximize your chances of winning, you need to trade like your Scrooge McDuck if Scrooge McDuck was obsessed with sheep and bricks. You need to come out on top of every transaction. But unless you're playing with a bunch of idiots, it seems pretty unlikely that any trade would happen whatsoever. Nobody's going to deliberately wind up on the wrong side of a bad deal, and if somebody's offering to trade with you, then they obviously think they're going to come out ahead, so you obviously shouldn't trade with them. This is partially why Settlers can get so intense with enough dedicated players at the table. When a good friend is dangling that one measly wood that you need in front of your face, and demanding all of your hard one grain in exchange, it's easy for it's just a game to meander over to I know where you sleep. However, in games with more than two players, there is a pretty reliable winning strategy that doesn't involve screwing over every other player at the table. Only the ones who won't cooperate. See, there's another resource which can be just as important as the little cards that players trade with each other, called Social Capital. Social Capital is a relatively recent sort of economic rebranding of an old concept in social science, that there is a collective sentiment of trust and cooperation in societies which can be valued in a very similar way to currency or resources. A lot of similar behaviors can be seen as extensions of social capital, like reciprocity or charity, but it's not just everything that makes you feel warm and fuzzy. It's a resource which people gather through interaction and then exchange to get others to work with them without being afraid of getting stabbed in the back whenever it's convenient. For example, if you develop a good relationship with your next-door neighbor and do each other favors all the time, they might ask you to watch their puppy for their weekend. Because you're on good terms and because you trust them not to take advantage of your generosity, you're not going to start researching the going rates for pet-setting in your area and charge them extra for such short notice, you're just going to take care of the puppy. Of course, Social Capital isn't just favors between neighbors or even individuals. Businesses, fandoms, nations, any group of people that has some sort of collective identity has a certain value of Social Capital. And it's really important. It's not just about pet-setting. It's kind of how society as we know it exists. If you can't trust your neighbors not to kill you and take your stuff or the police to come quickly when you call them or that the money in your bank account is going to be worth more to you tomorrow than however many cans of beans it can buy today, civilization just means being surrounded by more potential bean stealers than I have bullets. But if you can get some Social Capital, then you can trade it for things like infrastructure and community and not having to worry about the robber dropping onto your precious bric-hex every turn. This is actually of great interest to economists because as we've discussed previously, game theory only works if you take every factor that's important to somebody into account and assign it a value. And Social Capital is another variable in that equation. For example, in a classic economics game called the Ultimatum game, the experimenter promises one player $100 and then tells them to divide it up between themselves and another player in any way they see fit, like 50-50 or 70-30. The catch is that the other player can choose to refuse the deal, in which case neither player gets any money. Now if all anyone cared about was money, player two should accept any amount the player one chooses to throw their way no matter how small the percentage because hey, free money. But when Social Capital enters the equation, when player one's offer becomes indicative of how trustworthy or cooperative they are, player two might find that the amount that they're offered isn't worth the cost of seeing player one get away with it. So it's not surprising that in societies where cooperation is more of a norm, where Social Capital has a lot of value. Even though technically a 99-1 split should always be accepted by player two, the offers tend to be closer to a 50-50 split. That's just the cost of making sure that the other player doesn't feel shafted. Social Capital is a convenient model for how individuals and groups can balance the clear long-term benefits of working together against the clear short-term benefits of screwing each other over. If you imagine goodwill and cooperation as a commodity, it becomes a little bit easier to see how a nation where people trust each other might have a competitive advantage over a nation of self-interested jerks, or why a company might take a small hit in profits in order to ensure a good relationship with its customers. That's why teaming up with somebody else is generally a superior strategy in Settlers of Catan, especially in the early game. Pooling resources and information puts you light years ahead of all of the other players for the cost of some mutual trust. Of course, you can always stab your partner in the back and then try to end the game quickly before you get punished, at least until you develop a reputation for doing that. Can you think of a situation where the theory of Social Capital might explain seemingly altruistic behavior? Please leave a comment below and let me know what you think. Thank you very much for watching. Don't forget to follow, subscribe, and share. And I'll see you next week.