The Weird, Wild Economics of Halloween Candy Trading

Halloween candy trading is an age-old tradition that dates back to the first time hauls of wrapped sweets were brought home in a pillowcase and dumped onto the floor. Kids have the candy they love, the candy they hate. It makes sense that only way to get more of what they want and get rid of what they don’t is to trade. Let the wildly irrational deals ensue. And within them lie some interesting findings about economics.

It’s always a kick to watch kids who can’t yet read and write wheel and deal and try to offload candy corn as though they were trading corn subsidies. They may not fully know what they’re doing and what it’s called, but financial strategies – some stock market, a little poker, a bunch of negotiating – are playing out on the living room floor.

“Econ is everywhere,” says Erin A. Yetter, lecturer of economics at the Eller College of Management at The University of Arizona. It’s about making decisions, any kind of decisions. It’s about whether to get out of bed, what shirt to wear, and whether to buy the $7 coffee. And those choices are made against a backdrop of scarcity, be it time, money or resources, with everyone trying to answer a fundamental question of, Is this worth it to me?

With candy, the calculations start as soon as the bags are dumped out. Kids are rating what they love and hate in their haul, while doing the same to the opposition in an attempt to upgrade. This evaluation is acting out the ECON 101 principle that voluntary trade can make both sides better, says James Tierney, assistant teaching professor of economics at Penn State University.

It’s not a readily grasped concept in the me-first-mine kid world, but yes, it does mean that both older and younger siblings can improve their lot. For example, one kid has Twix, the other Skittles. They each hate their own and love the other. It’s an easy, no-fuss win-win exchange.

When things aren’t as straight up, they’ll ask the big question: How much do I want what the other person has? It’s at this point an exchange rate is established: Two Mounds for one Hershey Bar. Three Baby Ruth for one Charleston Chew. It’s calculating your preferences versus their preferences, all while trying to read a market that can fluctuate hourly, because feelings change, resources are delicious and get eaten, and, well, some traders are five years old.

Another principle in play is known as diminishing marginal utility. The fancy phrase really means that the more you have of something, the less valuable the next unit is, says Matthew Rousu, dean of the Sigmund Weis School of Business and professor of economics at Susquehanna University. Say your kid loves Snickers and has 10. He might realize that, say, there’s upside/no real loss in dealing away three to get his second favorite choice of Milk Duds.

All of this goes unspoken when kids trade Halloween candy. But underlying every candy transaction is how to conduct yourself, the question of whether to be honest or be a shark. The former has its upside with friends and especially siblings, since these are your trading partners for the next 10 years and also in probably five minutes, Rousu says. Tierney adds that playing nice is just more in our nature – this doesn’t have to be a bloodless activity. “We don’t have zero emotion,” he says. “We like to participate in things with other people who are like us.”

It certainly works and can be encouraged, but there’s the possibility that people can lie and bluff and think nothing of it. It’s the poker school of negotiating where deviousness is seen as fair and an expected part of the game, says Amanda Weirup, assistant professor of management at Babson College.

And these are siblings, where in another great tradition, older ones look to take advantage of the younger ones. It just could be the way their dynamic is, and like with all trading, each side experiences its own utility, she says. The older sibling gets all the big pieces for pennies. The younger one accepts getting continually hosed because he gets to be with his older brother.

As a parent, it’s your call on how to oversee the proceedings. You could let the market run wild and let the kids learn, but sidelining coaching is absolutely within the rules, Weirup says. You can drop in well-timed questions: “Would that deal make you happy?” “Do you think what’s being offered is fair?” “How would you feel if you couldn’t get those M&M’s back?”

It’s a challenge, because these transactions, done likely while under the influence of a sugar high, involve candy, excitement, and adolescence, a triple play that doesn’t always lead to rational thought. But that’s the point of giving the kids a nudge to consider “How can we think about things in a more structured way instead of just using our excitement?,” Weirup says. It’s also a good, low-stakes practice in which the commodity is cheap, easily replaced and resentment rarely lasts into the next day.

“It’s not like it’s the last Milky Way you’ll have in your life,” Weirup says. In other words? The trading floor will remain. Forget it, parents, it’s Halloween. Just don’t be shy about instating the mom and dad tax and taking a few prime choices away. Kids have to learn about taxation at some point.