Economics Games

Classroom Games For Teaching Economics

“When do first-movers have an advantage? A Stackelberg classroom experiment”

 

This week, we are adding “When do first-movers have an advantage? A Stackelberg classroom experiment”, by Robert Rebelein and Evsen Turkay (JEE 2016), on our site, in the industrial organization section.

 

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Abstract of the paper:

“The timing of moves can dramatically affect firm profits and market outcomes. When firms choose output quantities, there is a first-mover advantage, and when firms choose prices, there is a second-mover advantage. Students often find it difficult to understand the differences between these two situations. This classroom experiment simulates each scenario in a way that makes it easy for students to understand the theoretical reasons for the different possible outcomes. The authors have developed a two-firm classroom experiment where students first play a Stackelberg game in which firms sequentially choose production quantities and then a Stackelberg game in which firms sequentially choose prices. When choosing quantities, it is advantageous to move first, and when choosing prices, it is advantageous to wait.”

(JEE 2016: http://www.tandfonline.com/doi/abs/10.1080/00220485.2016.1179144 )

 

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New: “Policies with varying costs and benefits: A land conservation classroom game”

 

This thursday, we are adding “Policies with varying costs and benefits: A land conservation classroom game”, by Sahan Dissanayake and Sarah Jacobson (JEE 2016), on our site (“Externalities and public goods” section).

 

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Abstract of the paper:

“Some policies try to maximize net benefits by targeting different individuals to participate. This is difficult when costs and benefits of participation vary independently, such as in land conservation. The authors share a classroom game that explores cases in which minimizing costs may not maximize benefits and vice versa. The game is a contextually rich pedagogical tool, putting students in the role of landowners who must decide whether to conserve land in different policy environments: flat conservation payments, agglomeration bonuses, and a conservation auction. Students learn about specific issues in land conservation, ecosystem services, preferences for nonmoney outcomes, and general issues in policymaking. The game is suited to classes in environmental, resource, agricultural, and policy economics, and more general classes in microeconomics and public policy”

(JEE 2016: http://www.tandfonline.com/doi/abs/10.1080/00220485.2016.1146098 )

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“A Classroom Investment Coordination Experiment”

 

Last week, we added “A Classroom Investment Coordination Experiment” by Denise Hazlett (IREE 2007 , the paper is dowloadable here https://www.economicsnetwork.ac.uk/iree/v6n1/hazlett.pdf)


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Abstract of the paper:

“In this classroom experiment students represent firms that make investment decisions. They play a repeated game with each firm privately choosing its level of investment. Participating in the experiment helps students understand theories that posit coordination failure as the cause of economic fluctuations. Students see that when firms expect a recession, their resulting low levels of investment actually cause a recession. Likewise, when firms expect an expansion, their resulting high levels of investment cause an expansion. The experiment can be used in undergraduate principles or intermediate macroeconomics classes of 8–60 students…”

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New : “Design a contract! : A simple principal-agent problem as a classroom experiment”

 

Two weeks ago, we added a new classroom experiment, “Design a contract! : A simple principal-agent problem as a classroom experiment”, by Simon Gächter & Manfred Königstein (JEE 2009) on our site (information asymmetry section).

 

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Abstract of the paper:

“The authors present a simple classroom experiment that can be used as a teaching device to introduce important concepts of organizational economics and incentive contracting. First, students take the role of a principal and design a contract that consists of a fixed payment and an incentive component. Second, students take the role of agents and decide on an effort level. The experiment illustrates shirking opportunities of the agent and the importance of work incentives. Furthermore, it can be used to introduce students to the concepts of contractual incompleteness, efficiency, incentive compatibility, outside options and participation constraints, the Coase theorem, and the potential roles of fairness and reciprocity in contracting.”

(JEE 2009: http://www.tandfonline.com/doi/abs/10.3200/JECE.40.2.173-187 )

 

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New: Two simulations, on monopoly pricing and on perfect competition.

Three weeks ago, we added a simulation about monopoly pricing, marginal and sunk costs and price-elasticity of demand on our site.

The player is a monopoly on a given market, and must decide how many goods to produce and what price to set. Marginal and fixed costs change from one round to the other. In round 5, demand gets less elastic.

 

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We also added a second simulation about perfect competition.

 

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The player manages a small firm that competes with many other on a market. From consumers’ perspective, products of all firms are identical. Consumers are also informed about each firm’s price and there are no transportation costs: Consequently, they buy to the firms with the lowest price. The player knows that its competitors’ prices are stable and equal to $180k per unit and must decide what price to set and how much to produce. In round 3, the fixed production cost increases and the player must decide how to react to that.

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New : The Bubble Classroom Game

 

This Thursday, new classroom game about speculative bubbles, by Sophie Moinas and Sébastien Pouget on http://economics-games.com/games, in the finance section.

 

 

Abstract of the paper:

“Students sequentially trade an asset which is publicly known to have a fundamental value of zero. If there is no cap on asset prices, speculative bubbles can arise at the Nash equilibrium because no trader is ever sure to be last in the market sequence. Otherwise, the Nash equilibrium involves no trade. Bubbles usually occur with or without a cap on prices. Traders who are less likely to be last and have less steps of reasoning to perform to reach equilibrium are in general more likely to speculate.”

(SEJ 2016: http://onlinelibrary.wiley.com/doi/10.1002/soej.12119/abstract)

Next Thursday, we will add a simulation introducing the perfect competition model.

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New: The Herd Immunity Game

 

This week, we are adding a new free game to the site: the Herd Immunity Game, by Alan Grant, Jim Bruehler and Andreea Chiritescu (Journal of Economics Teaching 2016). You will find it in the section “externalities and public goods” on this page: http://economics-games.com/games .

 

Abstract:

“Outbreaks of dangerous, preventable diseases have drawn attention to individuals who fail to obtain available and effective vaccines. This classroom experiment demonstrates the basic cost-benefit tradeoff inherent in vaccination. As more students obtain a costly vaccine, the likelihood of a non-immunized student catching the disease declines; non-vaccinating students obtain herd immunity. In equilibrium, a substantial fraction of students fail to obtain the vaccine. In addition to highlighting a genuine public health issue, the experiment can also be used more generally to illustrate the nature of externalities and the public goods problem.”

 

The paper is available on the site of the (open) journal: http://downloads.journalofeconomicsteaching.org/1/1/1-2.pdf

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Next thursday, we will add “The Bubble Game”, by Sophie Moinas and Sébastien Pouget (Southern Economic Journal 2016, http://onlinelibrary.wiley.com/doi/10.1002/soej.12119/abstract), a classroom experiment about speculative bubbles.

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New oTree games (Auctions, Principal-Agent, Market for lemons…)

We are happy to announce that we have integrated oTree inside our site, economics-games.com.

oTree is a great free open source software for creating economics experiments and classroom games, which is already used in many experimental economics research centers (http://www.otree.org, “oTree – An open-source platform for laboratory, online, and field experiments”, Journal of Behavioral and Experimental Finance, vol. 9, n° 1, 2016, p. 88–97, by Daniel Chen, Martin Schonger, and Chris Wickens).

 

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If you have a little time, we would highly recommend you to code your own game (in Python): Everything is very clearly explained on the oTree website.

 

If you do not want to host your own server, you will find here several of the introduction games that are delivered with oTree:

  • Market for Lemons
  • Vickrey Auctions
  • Common-Value Auctions
  • Principal-Agent game
  • Bertrand Competition
  • Beauty Contest
  • An Ultimatum game
  • A Matching Pennies game
  • The Traveler’s Dilemma
  • A Trust game
  • A Stag/Hunt game
  • A Bargaining game

More advanced games, including original ones, will be added on a regular basis.

Also, If you have coded your own game or experiment and feel like publishing it in open access on our platform (or if you want to share a pedagogical document about existing games), do not hesitate to contact us.

 

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Intermittent production, correlated shocks, constant feed-in premiums and price volatility

Taken from the last session of the Energy Game.

Here is what happens when off-peak demand is even lower than expected (-10%), while wind blows more than expected around wind farms (+27%). As a constant feed-in premium made it interesting to produce power from wind farms even at a null price, price on the wholesale market dropped to a very low level (2€ / kWh).

pricenullwindThis is even more dramatic later in the game, when flexibility features of power plants are taken into account.

In the next version of the game, it will be possible to have negative prices on the wholesale markets.

 

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Stackelberg and Vertical Differentiation

In this example taken from our last game session at ENAC, one team (Flight club) used the option to precommit and chose to operate flights with small aircraft with high confort (much space between seats) on route A/D.

stackelbergIts competitor, Air Albi, later responded by differentiating and choosing big aircraft with little confort (little space between seats). In contrast to the standard Stackelberg result for undifferentiated goods, the first mover did not offer more seats than its follower, since the “most profitable customers” (the business passengers, who tend to pay less attention to price and more attention to comfort and to the convenience of departure times) are less numerous than leisure travelers.

Eventually, this maximum differentiation benefited both firms.

 

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