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Non-computerized experiment
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1.
Selling Seats Through An English Auction
The experimental auction highlights the importance of property rights in undergirding the market process. The auction is conducted on the first day that the class meets. The auction process and outcome provides a concrete example of how markets work and an opportunity to relate this to a variety of topics discussed in principles of economics. [Details...]
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2.
The Construction and Identification of Demand Curves: A Concerted Experiment for Principles Instructor and Dining Services
Demand curves are one of two key ingredients of the economist's totem--supply and demand analysis. Their identification and construction are notoriously difficult, especially as regards classroom instruction. More recently, several authors (De Young 1993, Ortmann and Colander 1995; Neral and Ray 1995; Delemeester and Neral 1995; Brauer 1995) have used classroom experiments to illustrate concepts related to supply and demand analysis.
Classroom experiments allow for a far-reaching control of the environment. This strength of traditional (classroom) experiments is also its biggest weakness. In a sense, the induced environments are too controlled, thereby tidying up the inevitable messiness of research, and making the identification problem disappear.1 This has led some instructors to simple in-classroom construction and evaluation of production and cost functions (Neral and Ray 1995) that do not use the induced value approach typical for traditional (classroom) experiments. Here we report a simple complementary semester-long experiment involving the construction and identification of demand curves in a college environment. [Details...]
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3.
Experimental Derivation of a Demand Curve
Most of the concepts presented in Principles of Microeconomics are particularly abstract to the average introductory student. This "Coke game" is designed to bring life to a few of these concepts so that students will better understand and retain important principles. Further, the active nature of the game provides a very welcome variation to the usual lecture format.
The following concepts are introduced through the use of this experiment: law of demand and the "ceteris paribus" assumption, consumer surplus, competitive equilibrium and pareto optimality, and monopoly power and profits. Since students are using their own money to purchase Cokes, the message being sent is particularly powerful [Details...]
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4.
Using Student Data to Teach Utility Maximizing Behavior
The primary goal of this experiment is to introduce students to the utility maximizing rule and to convince them that whether individuals know anything about economic principles or not they will act to maximize their utility subject to constraints in each of their purchases or activities. [Details...]
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5.
A Classroom Game for Developing Market Demand and Demand Elasticities: The Snicker Effect
This simple experiment of market demand has students create their own individual demand curves based on principles of consumer choice and then has them combine to create a market demand curve. The experiment further introduces students to the various types of elasticity associated with the demand curve; price elasticity of demand, income elasticity, and cross-price elasticity. Students are asked to hypothetically "buy" from a "store" in the classroom where product price and income change throughout the different stages of the experiment. The students are grouped and develop market demand curves for various products from which elasticities are then calculated. Including a 5 minute introduction, and a 5-10 minute concluding discussion, this experiment fits into a 50 minute class period. The author has used it in her introductory microeconomics course, with class sizes ranging from 20 to 70. [Details...]
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6.
An Experimental Test of Preferences for the Distribution of Income
his study investigates the question of how much income redistribution individuals desire in society with random differences in individual incomes. The experiments confronted individuals with choices of lotteries determining their own payoffs -- to determine individual risk aversion -- and with choices of lotteries determining payoffs to everyone in the group -- to determine preferences regarding the distribution of income. Comparison of the results reveal whether preferences for income redistribution are based solely on an individual "insurance motive" or involve preferences for a more equal distribution of income within the group than is explained by individual risk aversion. The results show that the subjects were risk averse but they did not display the extreme risk aversion implied by a Rawlsian maximin rule. The experiments produced conflicting evidence regarding the question of whether individuals favor a more equal income distribution than can be explained by individual risk aversion. [Details...]
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7.
Motivation and Coordination Games: Experiencing Organizational Dynamics
Both games are conducted in class and they have a short follow-up assignment that is announced after the game is finished. This assignment is meant to help the students understand what they have been doing and why the two games are different.
In the coordination game, the students have a common interest (the equilibria are Pareto ranked, and one is efficient). The problem is aligning expectations (and actions). Generally, the students initially settle on an inefficient equilibrium. Direct communication between students allows students to achieve efficiency and move to the Pareto efficient equilibrium without the need for binding commitments.
In contrast, in the motivation game, the players have a personal interest diametrically opposed to the common interest (a sort of multilateral prisoner's dilemma). By playing the game, students come to realize how difficult it can be to achieve cooperation when the benefits to defection are great. Even in the classroom, it seems impossible to get the Pareto optimal equilibrium without some kind of binding agreement. [Details...]
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8.
A Keynesian Beauty Contest in the Classroom
Most models of economic behavior are based on the assumption of rationality of economic agents and common knowledge of rationality. This means that an agent selects a strategy that maximizes his utility believing that all others do the same (are equally rational) and that all agents believe that all others believe that all agents are rational etc.
The p-beauty contest game is an appropriate game to test the assumption of this kind of reasoning. In this game a player has to guess what the average choice is going to be and the player will win if his choice is closest to some fraction of the average choice.
This experiment can be introduced in many different courses and at all levels of teaching. For example, it can be used in game theory in order to discuss the problems of iterated elimination of (weakly) dominated strategies and the issue of common knowledge of rationality; in macroeconomics to discuss rational expectations; and in microeconomics to discuss strategic interaction between players. [Details...]
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9.
A Simple Investment Game Experiment for the Classroom
We present a simple way of carrying out the Investment Game, introduced by Berg, Dickhaut and McCabe (1995) inside the classroom for instructional purposes. This game is a handy way of illustrating the principle of backward induction in sequential move games. In a slight deviation from the original design we allow each subject to play both as a Sender as well as a Receiver. [Details...]
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10.
A Simple Game Theory Experiment for Teaching Oligopoly
For a number of years, I have been using a simple and brief classroom experiment to illustrate the power of game theory in explaining the behavior of oligopolists. The whole presentation takes about fifteen minutes of class time, and it has worked well in the Principles of Microeconomics course. [Details...]
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12.
Predation in the Classroom
To help the students in my senior level industrial organization class understand predation, I run the experiment printed below, which is a modification of Jung, Kagel, and Levin (1994). The experiment takes about 75 minutes to perform. [Details...]
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13.
Oligopoly and Interdependence in the Classroom
After discussing perfectly competitive and monopoly market structures, most introductory courses cover oligopolies. I have found that the key to students understanding oligopoly market structures is for them to appreciate interdependence. When I first tell classes that oligopolies are interdependent, they are thrilled to know (after perfect competition and monopoly) that this means no curves (I don't use kinked demand). The thrill is somewhat abated when they realize that it means an alternative treatment is necessary, and it might be worse than the curves were. This is where I think it is important to give the students a sense of the behavioral nature of the models as well as to point out that oligopolies are much more common in the economy. This is a great juncture for introducing a classroom experiment or exercise. [Details...]
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14.
Hotelling in the Classroom
The purpose of the very simple classroom experiment we develop in this paper is precisely to present to students the key facets of the Hotelling model in a very intuitive yet comprehensive way. An interesting point is that the experiment actually allows one to deal with a priori purely technical issues such as the non-existence problem identified by d'Aspremont et al. (1979). The purpose of the experiment is thus to capture the whole story of spatial competition, including the clustering tendency by firms, price- competition problems, the demand-proximity effect, regulation aspects, and the political competition interpretation of spatial models. [Details...]
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15.
Perceptions of Chance and the Efficient Market Hypothesis: A Classroom Experiment
The efficient market hypothesis is one of the most difficult concepts to teach undergraduate students. This difficulty arises from the false knowledge which students bring to the classroom. Many students are born chartists, like many members of the financial community, certain that predictable patterns exist in stock price data. Most likely these beliefs are due to an inability to distinguish correlated data from uncorrelated data, as observed in psychological studies of the hot hand fallacy and the gambler's fallacy. The classroom experiment described in this article is designed to illustrate students' misperceptions of chance. Students are asked to pick one of five sequences as being uncorrelated over time. The experiment is presented in terms of true/false exams, a natural context for students. Results are consistent with the psychological literature; the modal response is a sequence with slight negative autocorrelation. Follow-up questions and discussions are also described. These are designed to make connections between the experiment, the psychological literatures on perceptions of random sequences, and the efficient market hypothesis. [Details...]
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16.
International Trade and Money: A Simple Classroom Demonstration
The activity presented in this paper is designed to demonstrate both gains from trade and the importance of fiat money as a medium of exchange. While this is certainly not the first activity to demonstrate either concept, it does offer the instructor the opportunity to prepare one demonstration for the presentation of multiple topics. This demonstration can be used in both a principles of macroeconomics or microeconomics classroom. It also can be tailored in several ways to reduce the amount of time required or to emphasize a particular topic. Student learning is enhanced as students typically find this activity humorous, adding to their excitement and interest in the topic. [Details...]
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17.
A Simple Experiment of Comparative Advantage
Paul Samuelson once said that David Ricardo's demonstration of Comparative Advantage is one piece of Economics which is perfectly simple without being perfectly obvious. This is shown, he claims, by the many business and political leaders of obvious intelligence who have utterly failed to understand it.
Unfortunately, this can also be said of the many intelligent Economics students, who, having learned to parrot the theory, still do not believe it. Am I the only instructor who, having put his Ricardian triangles through their paces, has turned from the blackboard to notice expressions that are somewhat more than skeptical? As an MBA student said to me good-naturedly after class, "Well, it's all theory, isn't it?"
The best diet for such healthy skepticism is for students to take a ride atop those trade triangles themselves--before hearing what theory says should happen. By taking this ride, the teacher himself was led to discover a simple misinterpretation reproduced in many textbooks. The pedagogical experiment is as follows. [Details...]
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18.
The Lucas Island Experiment
This experiment demonstrates the effects on real aggregate output of anticipated versus unanticipated monetary policy. The experiment follows Lucas's (1972) description of unanticipated monetary disturbances leading to confusion about real values and hence to fluctuations in output. See Sargent (1996) for a description of the precursors to Lucas's idea, and of its legacy. In this experiment, students gradually learn how to anticipate monetary policy, based on past Federal Reserve behavior, and therefore render monetary policy ineffective. [Details...]
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19.
A Savings/Consumption Game For Introductory Macroeconomics
Earlier this year, I took a first step at building a compendium of non-computerized classroom games for college-level economics classes (Brauer, 1994). I discovered that there are a fair number of games/exercises/simulations available to cover almost al l fundamental concepts of microeconomics, but there is a dearth of games for the macroeconomics class.
Here, then, is a game/simulation that can be played early on in a course on introductory macroeconomics. (I presume that it can be speeded up and 'juiced up' at the intermediate or MBA-introductory levels.) Most, perhaps all, textbooks and instructors, on the laborious way toward deriving an aggregate demand curve first derive an aggregate expenditure curve. The aggregate expenditure curve is usually built from an examination of the consumption function of private households, before an investment funct ion and then governmental expenditures and net exports are added. [Details...]
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20.
An Aggregate Demand Driven Macroeconomic Equilibrium Experiment
This paper describes a macroeconomic experiment that can be used in the classroom to simulate the impact of consumer spending decisions on a two sector economy. In this simplified specification, low levels of spending result in an unemployment problem whereas high levels of spending cause inflation. Several incentive systems are included to influence the students' behavior. The discussion of the experiment is followed by a summary of the results and some suggested modifications. [Details...]
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21.
The Savings/Consumption Game: An Update
A few years ago, I published a piece in this journal, entitled "A Savings/ Consumption Game for Introductory Macro-economics" (Brauer, 1994). Following a survey of available classroom games and participatory exercises, I found that most such games address issues of micro-economics, and I therefore set out to design an exercise of potential use in the teaching of introductory macroeconomics. The idea of the exercise is straightforward. Instead of merely presenting to students the graphical representation of the theoretical concept of a consumption function (C = a + bY, where C is consumption and Y is national income), why not simply collect data from the students themselves about how their own consumption (and savings) behavior might be affected if their own income were to change. [Details...]
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22.
A Search-Theoretic Classroom Experiment with Money
This classroom experiment promotes discussion of the social origins and characteristics of money. Students take the roles of traders who face a double coincidence of wants problem. As they recognize the benefits of overcoming trading frictions, students spontaneously begin using a consumption good as a medium of exchange. The setting comes from Duffy and Och's (1999) experimental version of the Kiyotaki-Wright (1989) search model of money. In the Kiyotaki-Wright (KW) environment, agents specialize in production, but consume a good other than their own product. Specialization combined with decentralized trading introduces the double coincidence of wants problem. In fact, no one could trade if each person held out for his consumption good. For trade to occur, at least some people must be willing to accept a good which they do not intend to consume, but which they hope to trade later for their consumption good. In other words, some people must be willing to accept a medium of exchange. When there exists an item generally accepted as a medium of exchange, then that item is money. Thus the KW setting captures money in its essential role as a medium of exchange. Here, using a medium of exchange reduces the cost of searching for a trading partner who has what you want and wants what you have. [Details...]
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23.
Bond Markets in Money and Banking
Students have expressed their enthusiasm for two bond market experiments that are now a regular part of my Money and Banking classes. These experiments are not designed for the principles level, but rather for upper division finance and economics majors. [Details...]
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24.
Beans as a Medium of Exchange
The experiment is designed to simulate an environment where something that is very similar to fiat money (i.e., is homogeneous, durable, portable, storable, divisible, has no intrinsic value of its own, etc.) will be accepted in market transactions and thus will have a "value." [Details...]
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25.
Economic Efficiency and the Role of Prices: Market Sessions for Use in Classrooms
In order to give economics students a better intuition for how an economy or a market works, exercises can be introduced directly into the classroom. The following three classroom games are designed to maintain student interest, promote involvement, and provide a way for the instructor to control the parameters of the game so that the outcomes directly relate to the basic concepts and lessons offered in the text. The concepts illustrated by the sessions are 1) the greater efficiency of resource allocation in a market economy as compared to a command economy, 2) the role of information in the efficient allocation of resources, and 3) that institutions matter.
[Details...]
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26.
A Simple Oligopoly Classroom Experiment
Classroom experiments can provide a stimulating experience for students who are being introduced to the ideas presented in a microeconomic principles course. The authors propose a classroom experiment on oligopoly that highlights the difference between a collusive and a competitive equilibrium. The exercise is similar to other oligopoly classroom games proposed with the exception that the game presented here is less time consuming for instructors and provides a list of suggested modifications that instructors can use to tailor the game to their specific educational needs. Empirical observations are also provided to give instructors an idea of how the classroom experiment works in practice and the range of actions that a typical undergraduate principles of microeconomics class are likely to exhibit. [Details...]
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27.
A Production Possibilities Frontier Experiment: Links and Smiles
In the teaching of college and advanced placement economics, some of the characteristics of the production possibility frontier (PPF) are as difficult to convey as they are important to understand. John Neral and Margaret Ray (1995) suggest a useful and instructive classroom experiment in which two products, "widgets" and "whajamas," are produced to study tradeoffs between outputs. Tearing a piece of paper in half, folding it twice, and stapling it creates a widget; folding the paper three times makes a whajama. We have designed the links and smiles experiment to incorporate one of the most challenging concepts to grasp in relation to the PPF--the specialization of inputs. Of course, it is this crucial factor that results in the increasing opportunity cost of production and the concave shape of the production frontier. [Details...]
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28.
Sunk Cost and Marginal Cost: An Auction Experiment
The concepts of sunk and marginal costs can be difficult to get across to students. To do so, I employ an experiment that involves auctioning dollar bills in class. I tell the students that I will be auctioning dollar bills the next class period and to bring change if they are interested in participating. I impress upon them: there is no catch, I will be auctioning off genuine U.S. one dollar bills, each bill will be sold to the highest bidder, and I will auction off at least two dollar bills--more if there is sufficient interest. [Details...]
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29.
A Production and Cost Experiment for Use in the Principles of Microeconomics
This paper presents a new, hands-on production and cost experiment that instructors can use in principles of microeconomics to introduce the fundamental concepts of revenues, production, and costs. The experiment provides an opportunity for the students to become directly involved in a production process (with incentives to maximize profits), and then facilitates the derivation of the production function and all of the standard short-run cost relationships based on data that the class generated. Students assimilate the theory more rapidly and comprehensively this way, allowing the instructor to cover these issues more effectively in preparation for their application in the market models. However, careful construction can also provide empirical exposure to quality control, innovations in production, specialization of labor, just-in-time delivery, etc. Several microeconomics experiments have been presented by others to explain supply and demand, collusion, scarcity, and monopoly behavior. This paper introduces a comprehensive new experiment to identify cost curves and production concepts similar to others available on this site and elsewhere, but more extensive in its coverage and flexibility. [Details...]
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30.
Widget Production in the Classroom
For many students, the standard principles-level treatment of production and cost is an incomprehensible maze of definitions and formulas, all of which can be very difficult to relate to real world production relationships. The following classroom exercise can be helpful in bridging this gap between theory and experience.
[Details...]
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32.
Streamlining Production Possibilities Frontier Experiments
Numerous classroom experiments involve the production of fictional goods. For example, Anderson and Chasey (1999) describe an experiment in which students produce two different products, widgets and whajamas, while Neral (1993) describes an experiment in which students produce widgets. In both of these experiments the fictional good is created with student labor and a variety of office supplies, including paper, pens or pencils, and staplers. While these experiments tend to be both entertaining and enlightening for the student participants, they are time consuming to prepare[1] and make an enormous mess! Fortunately, there is a way to maintain the educational content of these experiments without creating all the waste. [Details...]
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33.
A Budget Balancing Game
Regular peace time budget deficits are a relatively recent phenomenon in the U.S. Crain and Muris attribute this not to an adoption of Keynesian counter-cyclical policies or any other ideological shift, but to a restructuring of the congressional budget process. They claim that the rise of the subcommittee system and limitations on the appropriations committee created a common-pool problem with the "general fund." Each subcommittee will overgraze the common fund, that is they will recommend increasing spending on projects overseen by their own committee and funded out of general revenues. At the same time they will hope that the other subcommittees will show restraint.
A classroom game can easily show students both the common-pool model of budget deficits and illustrate why small items in your budget are relatively price-inelastic. [Details...]
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34.
Voluntary Provision of a Public Good
This paper describes a simple public goods game, implemented with playing cards in
a classroom setup. Students choose whether to contribute to the provision of a public good in
a situation where it is privately optimal not to contribute, but socially optimal to contribute fully.
This exercise motivates discussion of altruism, strategies for private fund-raising, and the role of
the government in resolving the public goods problem. [Details...]
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35.
An EPA-Style Auction of Pollution Permits
This exercise simulates a Chicago Board of Trade auction of allowances to emit sulfur dioxide, one of the pollutants which causes acid rain. The CBOT began running these auctions in March of 1993 on behalf of the Environmental Protection Agency. The EPA uses the auctions as part of a market-based program to cut power company emissions of sulfur dioxide in half between the years 1990 and 2000. This simulation demonstrates the cost savings from using the market-based approach versus requiring an across- the-board cut in emissions. [Details...]
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36.
Selfish Economists? A Means of Generating Classroom Involvement
Over the past several years, two points made by authors in Classroom Expernomics have changed the way I teach my Intermediate Microeconomic Theory students about the free-rider paradox. First, Hoaas and Drouillard [1994, p. 6] warned that participation in a public goods experiment was not sufficient to understand the paradox, and advised "post-experiment explanation." Second, Stodder [1994, pp. 1-2] persuasively argued that in many classrooms the voluntary contributions motive is "denigrated," either intentionally or without thought.
In response to the first point, I employ a straightforward all-or-nothing voluntary contributions game. The length of the game is significantly shorter than the more common tokens-distribution game--leaving more time afterwards for immediate classroom dialogue. Further, the characteristics of the game are easily explained. In response to the second point, I summarize the students' contribution rates in chart form and use the recent articles in the Winter 1996 issue of the Journal of Economic Perspectives as a springboard for discussion of the implications of and motivations behind their own and others' choices. [Details...]
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37.
How Fairness Can Affect Voluntary Contributions to Public Goods
Contributions to public goods have been studied experimentally by economists and sociologists for a long time. The main result is that subjects free ride, but not as much as game theory predicts. The standard game is as follows. Each member of a group of n players receives an endowment zi. Each player has to choose how much to invest in a public good. The experimenter collects the contributions, multiplies the total by some amount (a) and divides equally the product among the players. The game-theoretic prediction is that no one contributes as long as a/n<1. Experimental results showed that this prediction is not verified: subjects contribute around 40% of their endowments (see Ledyard, 1995, for a survey). The main studies focused on the rate of return of the public good, the number of players, the introduction of thresholds, institutional rules, etc. Some of them also examined subjects' preferences: comparative studies have been done on gender or education (for instance, Brown-Kruse and Hummels, 1992). In this paper, we propose to test the influence of fairness on subjects' decisions. Previous studies used questionnaires to discriminate among participants those who have stronger senses of fairness. Here, we study it directly in games with unfair redistribution, i.e., with payoffs and endowments heterogeneity. Our experiment, easy to reproduce in the classroom, shows that contribution rates differ largely and proves that fairness play a role in subjects' decisions to contribute. [Details...]
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38.
Teaching Privatization in the Soviet Union: An Experimental Economics Approach
During the spring 1991 semester I developed a discovery approach, or experimental economics approach, to an issue of restructuring the Soviet economy. It was innovative because students discovered the advantages of stock markets and how properly designed incentives encourage better work. This was done in the context of a proposal being considered in the USSR to reform the Soviet economy. [Details...]
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39.
Pollution Rights Trading Game
A classroom game can be played to demonstrate to students the natural incentives companies have to compare costs of pollution reduction to the cost of obtaining the right to pollute. The appeal is that students often have trouble accepting the concept of an optimal pollution level and have no trouble arriving at one through market forces. [Details...]
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40.
The Distributive Justice Game
The Distributive Justice Game asks students to draft a social contract while in a state that roughly mimics Rawls' original position. I begin by limiting the amount of chairs, time, pencils, and textbooks that the class will be able to use during an upcoming extra credit quiz. I announce that I intend to allocate these resources among the students according to such attributes as sex, race, and wealth. I then divide the students into groups and invite them, if they wish, to redistribute these resources among themselves. There's a catch, though. To give the game a Rawlsian twist, I announce that I will not allocate the quiz-taking resources according to the students' existing attributes; instead, all students will be "reborn" just before the quiz and given new identities. Unsure of whether their new attributes will entitle them to a fair share of the quiz-taking resources, students often strive to redistribute them as equally as possible, even at the expense of efficiency. [Details...]
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41.
A Bargaining Experiment to Motivate Discussion on Fairness
The author presents a classroom version of the popular research game
called the Ultimatum Game. Researchers are placing growing importance on how
fairness affects behavior, and this experiment provides a useful, fun, and engaging
way in which a day or two of class time can be spent on the topic. The appendix
contains all of the materials necessary to conduct this experiment, and the
experiment can highlight several items of interest for the instructor. First, different
individuals place different subjective weights on concerns for fairness versus
money. Second, theories that incorporate concerns for fairness into agents' preferences
can often explain behavior better than those that do not. Finally, when it
is relatively cheap to purchase fairness (or equality) individuals purchase more of
it. The classroom results can motivate discussion of a downward sloping demand
curve for fairness. [Details...]
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42.
An Experiment on Externality Rights
This experiment is simple and fun, but I have found it useful to make some Law and Economics points about externality rights and efficient specification of right, following Ronald Coase and Richard Posner. [Details...]
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43.
Equity and Efficiency in a Game
The classroom exercise described below is a fun way to illustrate equity-efficiency tradeoffs, the frustration associated with relative inequality, and the interdependence of decisions among members and institutions in society. It was designed for a principles of microeconomics course of about twenty to thirty students.
[Details...]
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