### Games Economists Play: Games 51 - 60

 Game: #52 Course: Macro Level: Principles and up Subject(s): Portfolio diversification Objective: To illustrate the power of diversification. Reference and contact: O'Sullivan, Arthur and Steven N. Sheffrin. Economics. Upper Saddle River, New Jersey: Prentice Hall, 1997 (pp. 328-329); arthur.osullivan@orst.edu; smsheffrin@ucdavis.edu Abstract: Students are offered the chance to participate in an investment game in which the outcome depends on the flip of a coin. The game's payoff is as follows:payoff = \$10 + \$100 [(#heads/#tosses) - 0.5)] That is, the student receives "\$10 but (can) either win or lose additional funds, depending on whether the fraction of heads that comes up exceeds one-half." The game has an expected return of \$10. Students are then asked if they would like to play under (at least) two alternative scenarios: Would you play this game with one toss only? Would you play this game if you could toss 1000 times? The point is that many tosses is equivalent to diversification Class size: Any size. Time: Less than one class period. Variations: None indicated other than the type of questions posed to the students. See also: Portfolio games

 Game: #53 Course: Micro, macroeconomics, money and banking Level: Principles and up Subject(s): Efficient markets hypothesis Objective: To teach the efficient market hypothesis to students who misperceive the nature of random events. Reference and contact: Cooper, David. "Perceptions of Chance and the Efficient Markets Hypothesis: A Classroom Experiment," Classroom Expernomics, 7(1), Spring 1998, pp. 1-9. Abstract: Students are presented with several series of answers from true/false exams. They are told that only one of the series is truly random while the others contain predictable patterns. Students are asked to identify the random series. Students who correctly identify the series with no correlation over time receive a small monetary prize. In general, the typical choice is a sequence with moderate negative correlation over time. Class size: Any number. Time: 20 minutes to complete the experiment; any remaining time is left for discussion. Variations: Use contexts that are closer to financial markets, such as having students distinguish real stock charts from fake stock charts. See also: Information games

 Game: #54 Course: Micro, health economics Level: Principles and up Subject(s): Market efficiency versus equity; moral hazard. Objective: Illustrate the impact of a third party payment system on the market for health care. Reference and contact: Gillette, David. "Double Oral Auctions and Health Care." Paper presented at the Economics Science Association Annual Meeting (November 1994); gillette@truman.edu Abstract: A double oral auction is used to illustrate the impact of a third party payment system on the market for health care. After a few trading rounds under a basic double oral auction, the buyers are informed that a benevolent dictator will pay 80% of their negotiated purchase price. The experiment allows the student to experience the tradeoffs between market efficiency and equity in the presence of universal health insurance coverage. Students also gain an appreciation for the nature of moral hazard and adverse selection issues. Class size: 10 and above. Time: One class period. Variations: Inform both buyers and sellers of the introduction of a third party payer. See also: Market intervention games

 Game: #55 Course: Micro, public finance Level: Principles and up Subject(s): Education market with positive externalities Objective: Demonstrates the problem of underproduction in the presence of a positive externality and the ability of private negotiations to internalize positive externalities. Reference and contact: Hazlett, Denise. "An Experimental Education Market with Positive Externalities." Journal of Economic Education, 31(1), Winter 2000, pp. 44-51. hazlett@whitman.edu Abstract: Students take on the role of either buyers or sellers of education or as interested bystanders. Each buyer can buy up to three units (years) of education subject to diminishing marginal benefit. Each seller can sell as many years of education as they choose at a constant marginal cost. Interested bystanders receive a spillover benefit for each year of education consumed by each buyer. A pit auction trading institution is used. After several periods of merely "standing around," interested bystanders are encouraged to become involved in the market. If bystanders remain inactive, the instructor can suggest specific strategies such as subsidies to buyers or sellers. Class size: 10 to 50 students. Time: One class period. Variations: Various forms of ‘government intervention’ can be implemented, such as compulsory attendance or price controls. See also: Externality games

 Game: #56 Course: Micro Level: Principles and up Subject(s): An Experiment in Income Redistribution and Poverty Measurement Objective: To get students to question the notion of income equality and poverty measures. Reference and contact: Deitz, Richard. "An Experiment in Income Redistribution and Poverty Measurement." Classroom Expernomics, 5(2), Fall 1996, 5-6; rmdgsm@rit.edu Abstract: Each student in class must contribute \$1 to a class fund. The sum of the contributions will then be given to a single class member. A small group of students must jointly and unanimously determine who that person will be. The recipient may not share the money with anyone else. The group may use any criteria is so desires — except for chance. Discussions usually focus on questions such as who is most deserving? who is the poorest? who works the hardest? what will the recipient do with the money? Discussion can then be oriented toward how current poverty programs and taxes are administered. Class size: Limit to 10 actively participating students. Time: 30 minutes. Variations: None indicated. See also: Income distribution games

 Game: #57 Course: Micro Level: Principles and up Subject(s): Pareto-efficiency; equity and efficiency tradeoffs Objective: Illustrates equity-efficiency tradeoffs, frustration with relative inequality, and interdependence of decision making. Reference and contact: Peterson, Ken. "Equity and Efficiency in a Game." Classroom Expernomics, 4(1), Spring 1995, pp. 1-2; ken.peterson@furman.edu Abstract: Students are told to quietly write down either "½" or "3" on a piece of paper. Each student will receive bonus points equal to the number they wrote down – unless more than three students have written "3" in which case all students will receive zero bonus points. Invariably, more than three students write down "3" so that all students end up with zero points. The instructor points out to the students how wonderful the equal distribution of points is and asks if the outcome was Pareto efficient. In another round, the instructor can reveal names of those choosing the number three by writing names on the blackboard (this may simulate ‘social punishment’ or learning). In still another round, the instructor may encourage students to communicate with each other during the decision process. Class size: Up to 20 to 30 students. Time: 30 minutes. Variations: Smaller class sizes can be accommodated by reducing the critical number of "3s" to two. See also: Income distribution games

 Game: #58 Course: Micro, Macro Level: Principles and up Subject(s): Balanced budgets and interest group politics. Objective: To illustrate the common-pool qualities of the budget negotiation process. Reference and contact: Murphy, Edward. "A Budget Balancing Game." Classroom Expernomics, 3(1), Spring 1994, pp. 7-8. Abstract: The instructor provides the latest budget figures by function (education, welfare, defense, etc.) and divides the class into interest groups pertaining to these functions. The entire class must then propose an alternative budget and pass the budget using a majority rule. The class as a whole divides up extra credit points that are based on the size of the budget deficit that is passed: the smaller the deficit, the larger the reward. The share of the total reward to each student, however, depends on how well his or her interest group does. Each interest group receives points for every dollar spent on its favored project and may have points deducted for money spent on certain other projects. Students will attempt to form coalitions in order to secure their favorable votes for their projects. Class size: Larger than 10. Time: One class period. Variations: None indicated. See also: Fiscal policy and public choice games

Game: #59
Course: Micro, public finance, and law & economics
Level: Principles and up
Subject(s): Agendas and strategic voting
Objective: Illustrates how agendas can be manipulated to generate voting cycles and an inefficiently high level of public spending.
Reference and contact: Holt, Charles A. and Lisa R. Anderson. "Agendas and Strategic Voting." Southern Economic Journal, 65(3), January 1999, pp. 622-629; cah2k@virginia.edu
Abstract: Students take on the role of voters with express preferences over various government ‘projects.’ A deck of ordinary playing cards is used to assign preferences among the voters according to the following predetermined pattern:
 V1 V2 V3 V4 V5 V6 V7 Heart Spade Heart Spade Heart Club Heart Club Club Spade Club Spade Club Spade Highway School Highway School Highway Highway School School School

Each student receives two cards: a Heart indicates a preference for a "highway" project (with a value of \$300 to the voter); a Spade indicates a preference for a "schooling" project (with a value of \$300 to the voter); a Club card has no effect on preferences. Each voter pays a tax of \$200 for each project that is funded. Under this setup a voting cycle can be observed in which one project defeats a second, which defeats a third, which in turn defeats the first project. Student voter decisions under different agendas can then be evaluated in terms of strategic voting patterns.

Class size: 7 to 35 students (multiples of 7 with off numbers assigned as pairs).
Time: 30 to 45 minutes
Variations: None indicated