### Games Economists Play: Games 1 - 10

 Game: #1 Course: Micro Level: Principles and up Subject(s): Demand curve Objective: To experimentally derive a demand curve Reference and contact: Brock, John. "Experimental Derivation of a Demand Curve." Classroom Expernomics, 1(2), Fall 1992, pp. 3-4. [adapted from Weidenaar (1972)] Abstract: On a warm day, bring two ice-cold Coke-bottles to class (on a cold day, some hot coffee or chocolate). Ask how many students would be willing to pay 10c for one bottle; then 20c; and so on. Tabulate and graph the result (voilá: a demand curve). Then ask students to assume that the day was really a whole lot hotter (or colder) and repeat the exercise (the demand curve shifts). Class size: Any size (for very large classes, deal only with a couple rows or columns of students) Time: A few minutes Variations: None indicated See also: Demand games

 Game: #2 Course: Micro Level: Principles and up Subject(s): Marginal utility/diminishing marginal returns Objective: To teach students an intuitive understanding of total utility, marginal utility, and diminishing marginal utility Reference and contact: Gillette, David and Robert delMas. "Psycho-Economics: Studies in Decision Making." Classroom Expernomics, 1(2), Fall 1992, pp. 5-6; gillette@truman.edu Abstract: Ask students to rate their present well-being on a scale of 0 (lousy) to 100 (bliss). Then feed them Hershey kisses, one at a time. After each 'kiss,' ask students to again rate their well-being. Collect the rating-sheets, tabulate, and display total utils, marginal utils, and (eventually) diminishing marginal utility. (Warning: the authors discovered at least one student whose marginal utility never dropped – a chocolate addict! Perhaps better to feed them marshmallows.) Class size: Small to large Time: Within one class period Variations: None indicated See also: Demand games

 Game: #3 Course: Micro Level: Principles and up Subject(s): Short-run production/production costs Objective: To help students understand TPP, APP, MPP, TFC, TVC, TC, MC, AFC, AVC, AC (and the associated short-run production and cost curves) Reference and contact: Neral, John. "Widget Production in the Classroom." Classroom Expernomics, 2(1), Spring 1993, pp. 7-8. or contact Dr. John Neral; Department of Economics; Frostburg State University; Frostburg, MD 21532; ph.: 1-301-689-4265 j_neral@fre.fsu.umd.edu Abstract: Provide students with (or ask them to bring) lots of paper and a (working) stapler. Divide the class into large groups (say, eight or more per group). Provide each group with half a table of production room (the shop floor). That plus the stapler is the fixed capital input (K=1). The group is to produce as many widgets as possible (fold the paper twice and staple it) within one workday, say, a 30-second time period. Start with no labor (L=0) to produce Q=0, never minding the stares. Then increase to L=1; have the group record total production (TPP) in the 30-second time-span. Then increase to L=2 and so on until diminishing returns set in (perhaps even negative returns if you like). Let the groups compute, tabulate, and graph their TPP, APP, and MPP. Then assign costs, e.g., K=\$10, L=\$5, and let the groups compute, tabulate, and graph the cost variables. They should get something more or less bizarrely similar to the nice textbook curves. (They'll learn about the convenience of abstraction pretty quickly this way.) Class size: Small and up. For very large classes, part of the class could watch with amusement; they'll get the point. Alternatively, part of the class could do the production runs; another part of the class to computation, tabulation, and graphing. Time: One class period Variations: None indicated See also: Supply games

 Game: #5 Course: Micro Level: Principles and up Subject(s): Chaos and Order in Markets Objective: To teach students (a) how apparently chaotic behavior is in fact orderly and (b) how economics makes correct predictions Reference and contact: Gillette, David and Robert delMas. "Psycho-Economics: Studies in Decision Making." Classroom Expernomics, 1(2), Fall 1992, pp. 5-6; gillette@truman.edu Abstract: In your first lecture (first course lecture or first lecture on the price system), show students a sealed envelope, then start by asking students to write down one or two words to the question: "What comes to mind when you hear St. Louis, Kansas City, New York, or Los Angeles and 5 o'clock rush hour traffic?" (Answers usually are: headache, stress, and the like.) Without tabulating the results, go immediately to the first trading round of a double-oral auction market (see Game #4, #6, or #7). Then ask students to write down one or two words to the question: "If economic markets regularly behaved in this fashion, how would you describe their behavior?" (Usual answers: chaotic, confusing, unorganized, etc.) Then complete the other trading rounds until an equilibrium price and quantity is found. Open a sealed envelope which contains the predicted price-quantity equilibrium. Class size: Small to large Time: One class period Variations: None indicated See also: Price system games

 Game: #6 Course: Micro Level: Principles and up Subject(s): Market clearing/market efficiency Objective: Basically the same double-oral auction game described earlier (#4), but geared toward teachability and classroom efficiency. Reference and contact: DeYoung, Robert. "Market Experiments: The Laboratory versus the Classroom." Journal of Economic Education, 24(4), Fall 1993, pp. 335-351. Abstract: The game is very similar to that described earlier (#4), and the author's discussion primarily focuses on issues of exposition: how the instructor collects and displays the market information generated by the players so that economic concepts are more easily understood (the researcher employs experiments to 'test' theory, the teacher uses experiments to 'teach' theory, writes DeYoung). For example, by computing a market efficiency coefficient (actual surplus realized divided by potentially achievable surplus) over successive trading rounds, students see that over time they near 100% efficiency (as theory predicts). Thus, the objective is to set up the game and the information display to generate a large bundle of concepts (consumer/producer surplus, allocative efficiency, prices, equilibrium, deadweight loss, social value of free markets, and so on) that subsequently can be examined one-by-one in the theory lectures by reference to the game. Class size: Small (10 to 30) Time: One class period Variations: Try a negotiated-price mechanism (i.e., a trading pit simulation) where 'buyers' and 'sellers' search one another and merely announce the completed trade to the instructor who then publicly displays the trade and price. The advantage is that there is no auctioneer involved. Further, because of search costs, it will take more trading rounds to achieve price convergence. Thus, one can easily introduce the concepts of how institutions and search (and, in another wrinkle, transaction) costs change the equilibrium dynamics of the market. See also: Price system games

 Game: #8 Course: Micro Level: Principles and up Subject(s): Monopoly prices Objective: To experimentally demonstrate monopoly power Reference and contact: Brock, John. "Experimental Derivation of a Demand Curve." Classroom Expernomics, 1(2), Fall 1992, pp. 3-4. [adapted from Weidenaar (1972)] Abstract: On the last lecture before your monopoly lecture, hand out a purchasing agreement on which students sign their name to agree to purchase from the instructor x-number of Coke-bottles for a range of prices (say, \$1/bottle down to 20˘/bottle). Students will think this recreates the earlier experiment (see #1), but this time for keeps. Paragraph 1 of the purchasing agreement reads innocuous enough: "1. Once the market price is determined, I am obliged to buy ...". The instructor takes the signed purchasing agreements, goes home, and computes the demand curve (using regression).At the beginning of the monopoly lecture, tell them that you are the Coke-monopolist (assume AC=MC=50˘ or whatever the instructor's cost is), and now you charge according to MR=MC and the instructor is off to the lecture. Class size: 20 and up Time: One class-period Variations: None indicated See also: Monopoly games

Game: #10
Course: Micro
Level: Principles and up
Subject(s): Game theoretic oligopoly/information in the marketplace
Objective: "... to illustrate some of the difficulties involved in price coordination (collusion) under circumstances of imperfect competition" (Hemenway, 1987, p. 727).
Reference and contact: Hemenway, David, Robert Moore, and James Whitney. "The Oligopoly Game." Economic Inquiry, 25, Oct. 1987, pp. 727-730; contains copy for class instructions; moore@oxy.edu ; whitney@oxy.edu
Abstract: Students are given the following pay-off matrix:
 Other students Compete Collude You Compete 10 40 Collude 0 20

At a snap count, all students raise either an open hand (signaling to compete) or a fist (collude). If more than half the students vote for "compete," then "compete" wins, and each student records his/her score (and vice versa when "collude" wins). Play six rounds. If students vote to "compete" in all six rounds (the usual outcome), the highest possible score is 60 points. And here's the catch: a grade will be assigned to each student, based on the points made. >100=A+; 90-100=A; 80-89=B; 70-79=C; 60-69=D; <60=F. Thus, all students will receive a grade of D or worse.

After the initial shock, let students play a second round of six votes. Now they start down the collusion road, until some student figures out that cheating "pays," (voting for "compete," when the others vote for "collude" gets you 40, rather than a mere 20, points), where after collusion usually collapses.

Finally, you may tell students, after the fact, that the "grading" was merely a device to get them to take the game seriously.

Class size: 15 to 70
Time: 15 to 45 minutes
Variations: (a) change the pay-offs to make it easier or more difficult to get a certain grade. For example, if >120=A+ is required, then 6 x 20 is not enough for an A+ anymore. Hence, the group needs to designate 'cheaters' (who get 40 points) and change the cheaters in each round (bid-rigging). (b) Go from open eyes to closed eyes to shut of all communication and see how the outcome changes.