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On fair trades, economics, and the arbitrary 2:1 ratio

potatoskunk

Master Corporal
There is a strong sense among FoE players that, when trading goods across ages, a fair trade is a 2:1 ratio.

I disagree. Strongly.

There have been attempts to calculate a fair ratio by the costs to produce goods in tiles, etc., but I disagree with those too. Those attempt to calculate the cost of producing goods and so will tend to approximate a fair price based on supply, but they completely ignore the demand side of the equation. And even the supply side is hard to calculate, since a lot of goods are not produced by goods buildings.

Let's go back to economics 101:
* Prices are set by supply and demand.
* An efficient market is one in which all agents are maximising their utility subject to their budget constraints and all markets clear.
* A fair trade is one in which a willing buyer and a willing seller agree on a price that they think makes them both better off.
* Price floors cause surpluses as people produce extra goods they end up being unable to sell.
* Price ceilings cause shortages as people won't produce goods they can't sell at a profit.

Now let's apply those economic principles to FoE:

What do you see when you look in guild trade threads and in available trades on the market?

What I see, over and over again, is a large number of people attempting to trade down at a 2:1 ratio - and the trade sits for days with no takers unless a fellow guild member grabs it to be nice. Someone attempting to trade up, on the other hand, at a 1:2 ratio, gets their trade snapped up instantly. Everyone wants to trade down, and hardly anyone wants to trade up. We have price controls imposed not by the game design, but by culture and player assumptions. Markets are not clearing; we have people wanting to make a trade that are unable to do so because there's nobody willing to make a trade the other direction.

This should tell us that, at the 2:1 price, the demand for lower-age goods is greater than the supply. Everyone wants lower-age goods, but nobody can sell lower-age goods at a good enough price to be worth producing more of them.

We have a price floor, in that it's assumed you won't trade down at a lower ratio than 2:1. We have a price ceiling, in that you can't trade up at a higher ratio than 1:2 without someone complaining about unfair trades. As a result, we have a surplus of higher-age goods and a shortage of lower-age goods.

IA goods are not worth twice as much as BA goods. EMA goods are not worth twice as much as IA goods. HMA goods are not worth twice as much as EMA goods. But the 2:1 assumption makes people think that they are.

My guess is that a truly fair price will tend to bounce around between 1.3:1 and 1.7:1 for trades across ages, depending on temporary localised spikes in demand for one good or another. A truly fair price for trades within a particular age will probably tend to bounce around between 0.8:1 and 1.2:1, again depending on temporary localised spikes in demand for one good or another.

Let's abandon the 2:1 ratio. Abandon any idea of a fixed ratio and allow the price to float freely according to supply and demand.

How would this work?
Let's say you have some Copper, an EMA good, and want to trade down to Iron, and IA good. Right now you just put it up at a 2:1 ratio and hope somebody takes it.

What if, instead, you looked in the market to see what other trades were out there? You could offer your trade at a comparable ratio to the others currently on the market, and you would know you were offering a competitive price. Maybe there are a bunch of trades available at a 1.5:1 ration, and you could put yours at the same rate.

If you're not in a hurry and are prepared to wait for a better price, you could offer a higher ratio; if the current ratio is 1.5:1, maybe you would put yours up at 1.6:1. There would be no guarantee that your trade would get taken, but if there was a future spike in demand for copper (and I would expect the price to bounce around quite a bit within a reasonable range), all the 1.5:1 trades would get taken and people would start taking 1.6:1 trades, and your trade would get taken too. You might have to wait a few days, and there's no guarantee it would get taken before it expired, but if you're prepared to wait you might get a better price.

Or, if you were in a hurry, you could offer a lower ratio and it would get grabbed quickly by someone who wanted the low price. If the current going rate is 1.5:1, you could put your trade up at 1.4:1, and it wouldn't take long for someone to snap it up.

You could also look to see what trades there are currently in the market offering Iron for Copper. If the best trade is at a 1.5:1 ratio, you might simply take that instead of putting up your own trade. Or if the best is at 1.7:1, you would have to decide if it's worth it to pay that price to get the Iron immediately.

On the Iron/Copper situation, I would expect a common scenario would be to have multiple people trying to trade Iron for Copper at ratios varying from 1:1.3 to 1:1.5, and multiple people trying to trade Copper for Iron at ratios varying from 1.5:1 to 1.7:1. For those versed in economics, the difference between the best Iron:Copper ratio and the best Copper:Iron ratio would be the bid-ask spread.

What would we lose?
* We would lose the simplicity of the easy 2:1 price - but looking at the open trades on the market to see what other trades are available is pretty quick and easy too.
* People in later ages producing late-age goods would no longer be able to exploit lower-age guild members by insisting on an unfair 2:1 ratio, and would have to take the current market price, which might be more like 1.5:1. They may not think of it as exploiting lower-age guild members and it's usually not intended that way, but that is the effect. Lower-level players are being pushed into unfair trades because of a cultural assumption that this arbitrary 2:1 price is "fair" when it's anything but.

What would we gain?
* Trades would actually get taken more quickly. It would be as quick and easy to trade goods down an age as it is to trade them up. Any competitive trade would probably get taken within hours or minutes, rather than days. You wouldn't need to rely on a fellow guild-mate willing to pick up your trade at their own expense.
* There would also tend to be trades that you could take immediately if you were desperate to get the trade executed immediately; you might have to pay a bit of a premium price to get an immediate trade, but the possibility would usually be there.
* If there's a shortage of a particular good, someone would ramp up production to take advantage of the high prices, or someone sitting on a surplus would have an incentive to sell it off.
* We wouldn't have to try to calculate what a fair trade is based on the cost of production, etc. You could simply look in the market to see the current going rate. The price would float based on supply and demand.

What about selling late-age goods for FPs?
This would not change.
If a typical cross-age trade goes for about 1.5:1, rather than 2:1, trading up across multiple ages to get high-level goods is still ridiculously expensive - trading up just four ages would be roughly a 5:1 ratio, and trading up six ages would be roughly 11:1. So if someone wants a couple thousand late-age goods to build a GB, it would cost them potentially tens of thousands of goods of their age to trade up to that level.
As a result, there will still be a market for those who want to sell late-age goods for FPs. The market might shrink slightly, but not significantly.

How would we make this happen?
There would not need to be any functional change in the game. Nothing in the game mandates the 2:1 ratio. We would just need to change the culture.

If you're trying to trade down and it's taking a long time, look at the market and just beat the current best offer. If the current best offer is 2:1, trying putting your trades at a 1.9:1 ratio or maybe 1.95:1 instead of 2:1. Encourage others to do the same; direct them to this post if needed. You'll find those 1.9:1 trades get taken up more quickly than the 2:1 trades.

If it starts to catch on, any time you want a trade to execute quickly, you can just look at the market and beat the current best offer - or look to see if there's an offer the other way that's at a price you're willing to pay.

If enough people start to appreciate the concept of truly fair trades based on supply and demand, everyone will benefit. You'll be able to trade goods up and down quickly and easily at prices that float freely based on what people are willing to pay. Competitively-priced trades will execute in minutes or hours, rather than days, benefiting everyone.
 

potatoskunk

Master Corporal
But there's no math needed. You would simply look in the market to see what the going rate is, and then you could match it or beat it.

2:1/1:2 is easy, but it stifles the economy. It's a slow process to get lower-age goods unless a fellow guild member just bails you out to be nice.

And if we want easy, I suspect 1.5:1/1:1.5 is closer to where supply/demand would put us.
 
The Ratios were Never Arbitrary!

The 2:1 - 1:1 - 1:2 Ratio goes ALL the way back to the beginning of the Goods Production Costs.

That was the ratio of goods productions One age up -- Same Age --- One Age Down rates of productions.

Further up the research tree these ratios have changed -- but the "Fair Trade" Policies of guilds stayed the same - it make computations easier.

No one is forcing you to these ratios. Trade for what ever you wish or can get - many do.
If your guild has a policy you don't like move on to another guild!

Indeed, some guilds don't want to be bothered "Policing" every trade that hits the market by their members.
Don't like a trade - don't take it. -- If the trade is truly "Unfair" it will expire.

Let the buyer beware as they say.
 

GADfan

Sergeant
You're wasting your breath, Skunk, many old FoEer's don't like change :D

I'm with you, though. Imo any trade is fair if the two participants agree on it.
 

Zeratul 2.0

Lieutenant Colonel
In the beginning Inno created FoE.
There was Bronze Age and there was Iron Age and the newbies players live in harmony.
They trade with each other happily 1:2 and 2:1.

But later on, and very soon, the players grew big and all become very picky.

I strongly agree with the OP, in terms of the observations and analytics. I can see the OP has done homework for he knew there were previous "attempts to calculate a fair ratio by the costs to produce goods in tiles, etc." I also like the OP's academic tone (Economics 101 and so on).

But there is something more, something bigger, that overshadows such voice of reasoning... sth. beyond a single individual's stength to solve, UNLESS you are --

"...a single individual, with the will and strength to transform the world. Emilia Nighthaven is such an individual."
 
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potatoskunk

Master Corporal
The Ratios were Never Arbitrary!

The 2:1 - 1:1 - 1:2 Ratio goes ALL the way back to the beginning of the Goods Production Costs.

That was the ratio of goods productions One age up -- Same Age --- One Age Down rates of productions.

Further up the research tree these ratios have changed -- but the "Fair Trade" Policies of guilds stayed the same - it make computations easier.

No one is forcing you to these ratios. Trade for what ever you wish or can get - many do.
If your guild has a policy you don't like move on to another guild!

Indeed, some guilds don't want to be bothered "Policing" every trade that hits the market by their members.
Don't like a trade - don't take it. -- If the trade is truly "Unfair" it will expire.

Let the buyer beware as they say.
The thing is, they are arbitrary. Sure, there was a reason those ratios were chosen. But they have no connection to supply and demand. Just look at how easy it is to trade up at a 1:2 ratio and how hard it is to trade down at 2:1.

And no, nobody is forcing me to use these ratios. But they're the culturally-accepted ratio. If you offer to trade down at 1.9:1, nobody will complain, but if you try to trade up at anything other than 1:2, you'll find no takers and may even get complaints, simply because people have it ingrained into them that 1:2 is "fair".

This cultural assumption is keeping people from making trades that would make both players better off.
 

potatoskunk

Master Corporal
In the beginning Inno created FoE.
There was Bronze Age and there was Iron Age and the newbies players live in harmony.
They trade with each other happily 1:2 and 2:1.

But later on, and very soon, the players grew big and all become very picky.

I strongly agree with the OP, in terms of the observations and analytics. I can see the OP has done homework for he knew there were previous "attempts to calculate a fair ratio by the costs to produce goods in tiles, etc." I also like the OP's academic tone (Economics 101 and so on).

But there is something more, something bigger, that overshadows such voice of reasoning... sth. beyond a single individual's stength to solve, UNLESS you are --

"...a single individual, with the will and strength to transform the world. Emilia Nighthaven is such an individual."
This is the real issue. We have an ingrained cultural assumption. This cultural assumption is wrong, and is hurting players by keeping them from making trades that would make both sides better off.

Inno could perhaps help with a market revamp that tried to cater to this kind of exchange by showing the best offers both ways, maybe even using terms such as "bid-ask spread". Even then it would take a lot to change the widespread assumption that 2:1 is "fair".

But it wouldn't actually require a change from Inno if we could just get enough people on board. You don't need to convince everyone. If a decently-sized minority of people start trading goods this way, it will build a fast-moving, highly-dynamic market that would benefit all participants. Eventually even the traditionalists would start to see the benefit of being able to exchange goods rapidly regardless of whether they're trading up or down.
 

klods hans

Monarch
It's too complicated. We'd have to check the market to see what the current, average ratio is. Then we'd have to calculate our own trades based on that ratio (or higher or lower). Much easier to just do 2:1 and 1:2.
 

Zeratul 2.0

Lieutenant Colonel
This is the real issue. We have an ingrained cultural assumption. This cultural assumption is wrong, and is hurting players by keeping them from making trades that would make both sides better off.

Inno could perhaps help with a market revamp that tried to cater to this kind of exchange by showing the best offers both ways, maybe even using terms such as "bid-ask spread". Even then it would take a lot to change the widespread assumption that 2:1 is "fair".

But it wouldn't actually require a change from Inno if we could just get enough people on board. You don't need to convince everyone. If a decently-sized minority of people start trading goods this way, it will build a fast-moving, highly-dynamic market that would benefit all participants. Eventually even the traditionalists would start to see the benefit of being able to exchange goods rapidly regardless of whether they're trading up or down.
I no longer know what you are talking about. The class has become Economics 999 from Economics 101 (assuming larger number means more difficult). I looked at the wiki page of "bid-ask spread" and still got absolutely nothing, which is a first. Usually, the wiki can take me from Point A to Point B.

Can we restart the conversation from ground zero... I think the problem is that you are assuming a "world", where there is an "open market", where there are a lot of traders that can contact one another. This assumption is more true while in Bronze/Iron age. There the neighborhood is big enough to appear to the player as a "big wild world". There are around 80 neighbors, all of whom have only 10 types of goods, stone/lumber/dye/wine/marble, and cloth/iron/jew/.../chalk (or something) and therefore there are a lot of opporunities, potential matches. And there we can talk about and think about different ratios. Soon enough in later ages, that is no longer the case. Firstly, the relationship among neighbors turns out to be plundering and plundered; instead of nice and kind traders. Secondly, each player in the n-th age now has 5n types of goods. Their needs and providing capacity vary greatly. Matching potential drops exponentially I'd say. Thirdly, in connection with the "firstly", you are now mainly dealing with friends and guildies. With them, the situation is that if you ask nicely for help, they'd meet your needs to their best capacity however "unfair" the transaction -- OK maybe just for once and twice, with an explanation why you need them, the point being, it is no-longer market-oriented. And everyone's needs and providing capacities are different. The chance that you need goods-A and have a lot of goods-B while a guildy or friend has a lot of goods-B and need goods-A is... whats the word... slim... Trades are taken mainly out of "being nice". Even as a flat-earth believer, here I admit there is not a flat, open world upon which a free market can exist. Depending on your locality, no one faces a flat earth, but might be facing either plains, mountains, deserts, coastal areas, basins, etc. which appear to them as the "whole world", instead of a flat shaped, regularly moded "world", one that can be subjected to scientific analysis. I don't want to revoke the same saying again but sadly it is the case, that, "this is just like in the real life", where you are mostly dealing with families, relatives, people whom you know, in a very limited circle. And often times, look and behold, today is someone's special occasion, birthday, or anniversary, or whatever (I hate those and like the "unbirthdays" -- you know what I'm talking about, right? In case you don't here is the link of unbirthday) and on that occasion, you must give everything you have (all your wealth) to the other party as free gifts, which defies all the scientific principles and there is nothing scientific about it! You are not connected with "the whole world".
 

potatoskunk

Master Corporal
Everyone has a different ratio which they think is fair
This makes that easy, though. If there are a bunch of Iron for Copper trades at 1.3:1 and 1.4:1 and Copper for Iron trades at 1:1.5 and 1:1.6, you would either take one of those trades, or you would say it wasn't worth it to you. In that case you'd post a Copper for Iron trade at 1:1.7 and wait for a spike in demand for Iron to drive the price up to the point where your trade got accepted.

Either you accept one of the offers on the table, or if you're prepared to wait you make an offer that's more favourable to you.

It's too complicated. We'd have to check the market to see what the current, average ratio is. Then we'd have to calculate our own trades based on that ratio (or higher or lower). Much easier to just do 2:1 and 1:2.
You wouldn't care about the average. You'd just look at the current best offer.

If I have Copper and want Iron and the current best Iron for Copper deal is at 1.5:1, I either accept that immediately, or else put up a Copper for Iron trade at 1.7:1 and wait for it to be accepted.

2:1 and 1:2 is easy, I grant you that. But haven't you seen how difficult and time-consuming it is to trade down? That's because 2:1 and 1:2 isn't fair and doesn't reflect supply and demand.
 

potatoskunk

Master Corporal
I no longer know what you are talking about. The class has become Economics 999 from Economics 101 (assuming larger number means more difficult). I looked at the wiki page of "bid-ask spread" and still got absolutely nothing, which is a first. Usually, the wiki can take me from Point A to Point B.

Can we restart the conversation from ground zero... I think the problem is that you are assuming a "world", where there is an "open market", where there are a lot of traders that can contact one another. This assumption is more true while in Bronze/Iron age. There the neighborhood is big enough to appear to the player as a "big wild world". There are around 80 neighbors, all of whom have only 10 types of goods, stone/lumber/dye/wine/marble, and cloth/iron/jew/.../chalk (or something) and therefore there are a lot of opporunities, potential matches. And there we can talk about and think about different ratios. Soon enough in later ages, that is no longer the case. Firstly, the relationship among neighbors turns out to be plundering and plundered; instead of nice and kind traders. Secondly, each player in the n-th age now has 5n types of goods. Their needs and providing capacity vary greatly. Matching potential drops exponentially I'd say. Thirdly, in connection with the "firstly", you are now mainly dealing with friends and guildies. With them, the situation is that if you ask nicely for help, they'd meet your needs to their best capacity however "unfair" the transaction -- OK maybe just for once and twice, with an explanation why you need them, the point being, it is no-longer market-oriented. And everyone's needs and providing capacities are different. The chance that you need goods-A and have a lot of goods-B while a guildy or friend has a lot of goods-B and need goods-A is... whats the word... slim... Trades are taken mainly out of "being nice". Even as a flat-earth believer, here I admit there is not a flat, open world upon which a free market can exist. Depending on your locality, no one faces a flat earth, but might be facing either plains, mountains, deserts, coastal areas, basins, etc. which appear to them as the "whole world", instead of a flat shaped, regularly moded "world", one that can be subjected to scientific analysis. I don't want to revoke the same saying again but sadly it is the case, that, "this is just like in the real life", where you are mostly dealing with families, relatives, people whom you know, in a very limited circle. And often times, look and behold, today is someone's special occasion, birthday, or anniversary, or whatever (I hate those and like the "unbirthdays" -- you know what I'm talking about, right? In case you don't here is the link of unbirthday) and on that occasion, you must give everything you have (all your wealth) to the other party as free gifts, which defies all the scientific principles and there is nothing scientific about it! You are not connected with "the whole world".
I suppose the other change Inno could make that would help with this would be to broaden the market, especially at higher levels.

On trades within guilds and between friends, yeah, a lot of the time you're lending a hand to help someone out, rather than doing a trade that is mutually beneficial. That's fine.

But there are a lot of times those trades don't get grabbed by a friend or guild-mate. And then they tend to sit indefinitely - because they're not at a price that actually reflects supply and demand.
 

klods hans

Monarch
You wouldn't care about the average. You'd just look at the current best offer.

If I have Copper and want Iron and the current best Iron for Copper deal is at 1.5:1, I either accept that immediately, or else put up a Copper for Iron trade at 1.7:1 and wait for it to be accepted.

2:1 and 1:2 is easy, I grant you that. But haven't you seen how difficult and time-consuming it is to trade down? That's because 2:1 and 1:2 isn't fair and doesn't reflect supply and demand.
Exactly, too complicated, as said.
2:1 and 1:2 I can calculate in my head; it's just half or double. For 1,7:1 (or whatever odd ratio) I would probably need a calculator. And I would have to spend time to check the market for the current best offer, before I calculate and post my own trades.

No, I don't find it difficult to trade neither down nor up at 1:2 and 2:1. Most of my trades at these ratios get taken within a day or two. It they don't, I might change them to a ratio that's more profitable for the buyer.
 

potatoskunk

Master Corporal
I made a suggestion that would automatically calculate the amounts and ratios and display the current best ratio when creating a new offer: https://forum.en.forgeofempires.com...-entering-ratios-as-well-as-quantities.42942/

Those who want to use 2:1 could continue to do so, but it would allow those who want a price driven by supply and demand to use it without having to do the manual work of calculating amounts and ratios or checking the current best offer.