Experiments and the Economics Classroom 11 th Annual Economics Teaching Workshop UNC, Wilmington Tisha Emerson Baylor University October 8, 2011

Session Outline  What is an Experiment?  Why use Experiments?  Participate in an International Trade Experiment  Debrief the Experiment  Best Practices for Implementing the Experimental Pedagogy

What is an Experiment?  An activity that asks students to make economic decisions by putting them in the role of buyers and sellers.  Student decisions create data that can then be used for analysis and further illustration of economic concepts.

Why Experiments?  Evidence suggests that experiments lead to higher student achievement and learning.  Gremmen & Potters (1997); Frank (1997)  Emerson & Taylor (2004)  Dickie (2006)  Ball et al. (2006)  Durham et al. (2007)  Experiments increase student involvement, discussion, and engage them in the learning process.  Experiments can foster a sense of community in the classroom.  They are fun! Both students and instructors enjoy them.

Simulation Instructions  Participants will be given a private information slip that describes their role in the experiment, including  The country in which they reside  Whether they are a buyer or a seller  Their reservation price  The experiment will consist of a number of market rounds in which participants may buy (or sell) at most one unit of the good. Only whole units may be traded.  Participants will negotiate for trades so as to maximize their earnings.

Calculation of Earnings  Buyers’ earnings are the difference between the value on their information slip and the price they negotiate for the good.  Sellers’ earnings are the difference between the price they negotiate to sell the good for and their cost of producing the good (from their information slip).  If a buyer or seller fails to negotiate a trade, their earnings for that period are zero.

Simulation Instructions  Once a trade is negotiated, participants will:  Report their trade to me at the front of the room and I will post their trade information.  Record their earnings on their record sheet (back of instructions).  Participants will then wait for the trading round to conclude.  At the end of the experiment, the four highest earners will receive a prize!

Trading Instructions  Buyers can call out offers to buy by saying, for example, “Buy at 15”.  Sellers can call out offers to sell by saying, for example, “Sell at 42”.  In the initial rounds, trades can only be made between buyers and sellers from the same country.  Trading periods are 3 minutes.

Let’s Play …

Debriefing the Experiment  Provide students with the buyer values and seller costs and use these to graph the demand and supply curves for the good in each country.  Compare predicted outcomes with experimental outcomes including price, quantity, and surplus.  Predict which participants will and will not be able to trade. How do the predictions compare to the experimental outcomes?  How does the liberalization of trade affect total surplus? Are all participants made better off?

Predicting the Equilibrium Outcome: Country X

Predicting the Equilibrium Outcome: Country Y

Predicting the Equilibrium Outcome

Computerized Experiments - Aplia The two experiments on Aplia involved illustrating ▫The competitive equilibrium (simple D&S) ▫The effect of a price control These can be debriefed in a manner similar to that of the international trade experiment Aplia records the trade data which can be downloaded along with the distributions of buyer values and seller costs post experiment for distribution to students to use in follow-on exercises.

What can students learn from these Experiments?  All: How to predict the equilibrium outcomes in markets (including price, quantity, surplus) and the predictive power of the simple demand and supply model.  The price control experiment: The effect of price ceilings and floors  The international trade experiment:  The law of one price and how it is violated when trade is restricted.  Free trade is welfare enhancing, but may leave some market participants worse off.  Other?

The Experiment as Springboard  Students can complete a simple problem set comparing the theoretical and experimental outcomes of the experiment.  Students can complete the experiment in conjunction with readings about related topics (e.g. price control policy, international trade and globalization)  Students write an essay discussing the effects of price controls or trade liberalization.  Other?

Best Practices  Which experiments should I run?  How many experiments?  Manually run or computerized?  How should students be prepared for the experiment?  Should experiments be run before or after presentation of the material?  Does everyone have to participate?  How can we motivate students?  I’ve run an experiment, now what?  What role does the instructor play in all this?

Some Sources of Experiments  Manually run  Bergstrom & Miller, Experiments with Economic Principles  Delemeester & Brauer’s Games Economists Play  Denise Hazlett, Classroom Experiments in Macro  Computerized  Charles Holt, Veconlab  Aplia  EconPort

Before We Conclude…  Why should we use experiments?  What have we learned about classroom experiments?  Do you have unanswered questions?