Is Monopoly Based On The Pareto Distribution?
Is Monopoly based on the Pareto Distribution? The popular family game known as Monopoly is one where you take your piece and hop around the board. You also try to buy properties (which is essentially plots of land), then building buildings on the land and charging rents on the buildings. This involves buying property for a set dollar amount, purchasing houses and hotels on these properties once you have a Monopoly (3 of a certain color) which would be the equivalent of buying a certain number of properties in an area, and then you can build on the property. From here, you can get your properties to cash flow and you can charge rent on your properties, just like you would in real life.
The game of Monopoly is my absolute favorite, and it is so cool, because much like playing Chess, it is VERY attributable to real life. There is an element of luck and chance to the game, but the real way that you win the game is to buy up every single piece of Monopoly that you can. There is something that just feels so “real” about Monopoly and chess that no other game quite has, and that’s why I love the game so much.
Why Monopoly is a Good Lesson for How Real Estate Works
I used to be OBSESSED with Monopoly when I was a kid, but I couldn’t quite figure out why. What I realize now is that it is a board game equivalent of the great game of business. Monopoly in real life is Real Estate, it is the game of SEO acquisitions (which is basically online Real Estate) and it is something where you can build up your empire almost fully from scratch. It is based on the pareto distribution, which basically says that as you make more money, it becomes more likely that you can make more money, and that one person at the top eventually wins ALL the money once the scales tip towards them in a certain way.
Monopoly is about real life real estate because consider the following example, and tell me this doesn’t sound like a game of Monopoly.
I buy a Duplex for $350,000. I live in one half and I rent the other half of the home out for $1500 a month. After expenses and taxes, say this nets me positive cash flow on the house of $1100 a month, and plus I am not paying rent now so I am +$2200 a month, or $26,600 a year in revenue.
A mortgage on another duplex, if I save up to put $100,000 down on a $350,000 property, for a 15 year fixed is probably going to be in the $2000 to $2500 a month range. I can pay for this in full out of my first original property, AND then I get both sides of the rent, so it is cash flowing an additional $30,000 per year, or say $25,000 after taxes and expenses. Now I own 2 properties, $450,000 in total equity on the properties, I have only a $250,000 mortgage with a $2,000 per month payment, and I have something like $52,000 per year in cash flow to not only pay down the mortgage, but to continue providing cash flow for the rest of my life.
So yes, Monopoly absolutely exists, and it is a metaphoric game for exactly what happens in real life. While it is pretty realistic in terms of the overall theme of the game, there are some things that it lacks:
There are no annual expenses on each house, hotel and property like there are in real life.
There is no unsecured debit like in real life.
A hurricane cannot knock down houses and need repairs
The actual cash flow in real life is much less than in the game on a per dollar basis
There are multiple ways to play monopoly in real life, the most commonly successful of which are:
Diversified Business Acquisitions
Dividend Stock Portfolios (You put $5,000 into a REIT cash flowing 5%. Then you put that 5% in, etc. for additional compound interest).
And so, that’s why I love the game of Monopoly!
Is Monopoly Based On The Pareto Distribution?
Yes! Monopoly is absolutely based on the Pareto distribution. What this law says, and this is heavily based on Price’s law, is that as you get further away from the bottom, it increases the probability that you are going to get further away from zero. It also means that the closer you get to 0, the more the probability increases that you are going to just go all the way down to zero.
This rule also means that a very small percentage of the people have ALL the money, ALL of the time, cross culturally and in every single field. In classical music, 5 composers sell like 95% of the music sold and of those 5 composers the top 5% of their work sells the top 95% of that music sold. The people at the 1% in the United States control like 60% of the wealth in the country, and the top 1% of 1% control a substantial majority of that money, and so on and so on. It is pretty much just a rule found in nature, and the rule will always be there no matter how manmade action is taken in economics!
Why I Got The Idea to Write This Blog Post
I got the idea to write this blog post because I have been stuck in Naples, Florida in the massive Hurricane Ian over the past 2 days and have been just playing monopoly with my roommate here to pass the time. I usually have advanced SEO keyword tools and internet to look for blog ideas, and reference sources, and FAQ suggestions, and all of that stuff. But we’re going full on caveman style today and I have to use only my imagination to write blog posts today!
Final Thoughts On Is Monopoly Based On The Pareto Distribution?
Yes it is! And in fact it is the major theory of the game. Monopoly is largely based on the principal that given enough time, someone eventually ends up with all the money, and the other player ends up with $0.00. It happens every single time. The reason for this is the Pareto Distribution and Price’s law. Hope you enjoyed reading, for more details and information on all things Real Estate, business and finance, be sure to comment down below and to subscribe to our blog for additional details and information!
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