Instructor Workbook: Principles of Macro

Copyright ©2017. All Rights Reserved. MobLab Inc.

Contents

I Preliminaries 4

1 Introduction to the Workbook 51.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 Technology 62.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.2 How does MobLab work? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.3 Create your class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.4 Running your first game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.5 Running your first survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.6 Wifi capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.7 LMS integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.8 Student perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3 Pedagogy 93.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.2 What games do and do not do well . . . . . . . . . . . . . . . . . . . . . . . . . 93.3 Instructions and instruction comprehension . . . . . . . . . . . . . . . . . . . . 103.4 Reflection questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.5 Results presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.6 Instructor and Student Workbooks . . . . . . . . . . . . . . . . . . . . . . . . . 103.7 Playing our games out of class . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4 Classroom Management 134.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.2 Getting students onboard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.3 Getting students logged in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.4 Student motivation and how to grade . . . . . . . . . . . . . . . . . . . . . . . . 13

II Gains from Trade 15

5 Comparative Advantage 165.1 General Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165.2 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165.3 Time Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175.4 Class Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175.5 Detailed Instructions and Comments . . . . . . . . . . . . . . . . . . . . . . . . 17

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III Markets 21

6 Supply and Demand: Convergence to Equilibrium 226.1 General Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226.2 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226.3 Time Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236.4 Class Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236.5 Detailed Instructions and Comments . . . . . . . . . . . . . . . . . . . . . . . . 23

7 Asset Markets: Bubbles and Crashes 287.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287.2 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.3 Time Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.4 Class Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.5 Detailed Instructions and Comments . . . . . . . . . . . . . . . . . . . . . . . . 29

8 Labor Market with Unemployment Insurance 348.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348.2 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348.3 Time Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348.4 Class Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.5 Detailed Instructions and Comments . . . . . . . . . . . . . . . . . . . . . . . . 35

IV Monetary Issues 39

9 Bank Run: Panics and Deposit Insurance 409.1 General Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.2 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.3 Time Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.4 Class Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.5 Detailed Instructions and Comments . . . . . . . . . . . . . . . . . . . . . . . . 41

Part I

Preliminaries

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Chapter 1

Introduction to the Workbook

1.1 PurposeThis instructor workbook provides educators with general and specific material related toteaching with MobLab games and surveys. The general material includes technology, peda-gogy, and classroom management information that are useful across activities. Specific ma-terial includes guidance on specific games. For example, how to use linked modules, videos,and the Student Workbook to lower your preparation costs and maximize student learning.

We believe this workbook will prepare instructors, and, the Student Workbook will help stu-dents see the connection between the game and course content. But, our goals at MobLabare greater than that. We designed our materials to train students to become scientists. Ourpre-built curriculum focuses (linked throughout the text) focuses on on how small changesto the “rules of the game” affect incentives, strategic interaction, and lead to different re-sults. Our interactive results help instructors to present information incrementally. Thishelps students absorb theory better. Then instructors can compare economic theory to theexperimental data. This can lead to a number of interesting open discussions. We help to pro-mote these deeper discussions with pre-built Reflection Surveys on the console and questionsin the Student Workbook.

Finally, while our goal of creating scientists is serious, our games are fun! We hope thesematerials help spark the joy of discovery in your students. Thank you for entrusting yourclass to MobLab. Please let us know if you have ideas to update these materials for the benefitof other instructors and students. Contact support@moblab.com with any questions.Our team is happy to help!

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Chapter 2

Technology

2.1 IntroductionIn the technology section we want to provide a brief description of how our technology works,how to implement MobLab in the classroom, and how to use our technology for administrativepurposes like grades. Instructors are also frequently curious what the students see. Section2.8 documents student sign-up and participation in games and surveys.

2.2 How does MobLab work?MobLab is a cloud-based platform that allows instructors to conduct interactive games andsurveys both in and out of the classroom. Students can participate in these activities onlaptops, tablets, and smartphones. Our instructor and student platforms support the latestbrowsers and iOS/Android apps.1

Our games are designed in-house by MobLab engineers, designers, and economists on HTML5. All of our games and surveys are designed to bandwidth efficient so instructors can useMobLab in classes as large as 1,000+ students.2

2.3 Create your classCreating a class is easy. Once you have signed up with a MobLab instructor account youcan follow these instructions to create a new class. Once you have created a class it isstraightforward to get students onboard (see Chapter 4.2). If you want a quick tour of theinstructor console please view this video on the Instructor Console.

Note: While not technology related this seems like a good place to interject about content.The workbook contains many relevant games for your class but if you want to learn about allrelevant options for your class please contact support@moblab.com. Send us your syllabus andwe will be happy to make recommendations.

1For example, Chrome, Firefox, Safari, and Internet Explorer 9+ browsers and student mobile apps for iOS8+ and Android 5.0+.

2Our surveys are also built on websocket, a technology that is much more bandwidth efficient than httppoll, long polling, or http streaming. We have supported 900+ concurrent user connections, with little to noeffect on our server capability or speed.

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2.4 Running a Game: In BriefStart with our playlist feature. The playlist is an excellent organizational tool. Be aware,students will see the playlist name. After you have created a playlist you can add a gameto the center part of the console. Go over the game instructions using either our video, web,or PowerPoint instructions. Once everyone understands the rules, begin the game! After thegame begins you will automatically have monitoring capabilities. Additionally, you may findthis walk-through video on how to run a game helpful.

2.5 Running your first surveyRunning a survey is similar to running a game, however, there is some advice specific tosurveys. First, our “Basic Survey” includes a number of survey types, e.g., multiple choice,free text response, etc. Second, with our surveys you can use the “paths” feature to runsurvey-based experiments or to re-order questions and reduce cheating. You may find thiswalk-through video on survey features and how to run a survey helpful.

2.6 Wifi capacityWIFI capacity is frequently a non-issue. However, we understand the concerns associatedwith bringing a new technology into the classroom. Our engineers estimate that any givenclassroom has the capability to support at least 85% of the number of students expected to bein the class concurrently. The expected student data usage for a MobLab session is between25-50MB. Most of the bandwidth is used when students first load MobLab. Instructors withbandwidth concerns may ask some student to use data through our mobile apps to keep fromoverloading the routers at a school. If you have additional questions don’t hesitate to contactsupport@moblab.com. We are happy to talk with your campus IT.

2.7 LMS integrationMobLab is Learning Tools Interoperability 1.1 compliant and once integrated with campuslearning management system (LMS), students can access MobLab with single sign-on andinstructors can send participation and grades from MobLab to their LMS. Please contactsupport@moblab.com for campus tailored LMS integration steps.

Security considerations are minimal. MobLab does not keep any student data except forMobLab student email and password. Student passwords are hashed and students are en-couraged to create a password that is unique from their LMS login password. Furthermore,we only allow for https connections as opposed to http.

2.8 Student perspectiveYou may be curious what students see during the sign-up and game play process. To create anaccount students go to www.moblab.com and sign-up as a student. After an account has beencreated, they join your class. See section 4.2 to locate class code information and documentsthat make it easy for students to join your class. Once an account has been created and thestudent has joined your class, the next big step is for students to participate in a game or

survey. When there is an active playlist, it will generate a session students can join. Wealso show the student experience toward the end of our walkthrough videos for games andsurveys.

Chapter 3

Pedagogy

3.1 IntroductionAllgood et al. (2015) note in their Journal of Economic Literature review that, “The evidenceon the use of classroom experiments and cooperative learning shows consistent positive effectson student achievement …”. These results are encouraging for the future of classroom exper-iments. Scholars are just beginning to understand best practices for classroom experiments.For example, Cartwright and Stepanova (2012) have found that student reflection is necessaryfor learning gains from classroom experiments.

Some of the advice in this section on pedagogy is based on empirical evidence. When that isthe case we will provide citations. Other advice is culled from instructor experiences acrossyears of teaching with classroom experiments and our own time as a commercial product.

3.2 What games do wellMost good arguments are built on logic, credibility, and emotional appeal.1 Economics modelsare logical, but struggle to make an emotional connection with students and may not be viewedas credible. Classroom experiments can help on both fronts.

1. Consider the competitive market and the “invisible hand”. To students learning eco-nomics for the first time, the “invisible hand” sounds like voodoo, superstition, or hocuspocus. However, classroom experiments can help show that individuals following theirown self-interest leads to an efficient allocation of resources. In the context of the doubleauction price and quantity converge to equilibrium. By comparing economic theory toeconomic outcomes, students see the credibility of the supply and demand framework.

2. Consider the prisoner’s dilemma. Many students will experience being the “sucker”that chose Cooperate when their partner chose Defect. This often evokes an emotionalresponse from students and the sting of this experience helps cement the idea of a “bestresponse” and equilibrium.

The games will not help students solve math problems; however, a couple things are worthnoting here. First, the survey technology can be used to determine deficiencies. Second, inaddition to improving credibility and emotional connection to material, the games help sparkstudent curiosity and motivation. This can indirectly help with the core competencies.

1Aristotle set forth these ideas in his Rhetoric. See this website for more detail.

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3.3 Instructions and instruction comprehensionThere are several benefits to students understanding the instructions. First, there is pedagog-ical value to students understanding the instructions. For example, buyers and sellers whounderstand how their payoffs are calculated $V − $P and $P − $C respectively (where V isvalue, P is price, and C is cost) will also understand consumer and producer surplus moreclearly. Second, the instructions prepare the students to participate in the game. Preparedstudents have a better experience with the games, plus and will generate data that is easierto explain.

In the Instructor Workbook we will make student comprehension of the instructions even eas-ier. In each chapter we link to video instructions that can be copied and pasted to your LMS.Students can watch these and complete corresponding warm-up questions while watching thevideo. Finally, we have pre-built instruction comprehension questions which you can quicklyadminister at the start of class for a final checkpoint to correct misunderstandings.

3.4 Reflection questionsEach workbook module on the instructor console contains reflection questions. These reflec-tion questions are done before results presentation. Items in the “Reflection Survey” promptstudents to think about their strategy and how it evolved across rounds. These questions helpstudents ground economic theory in their own experience. Thinking through these kinds ofquestions improves student clarity and benefits open discussion. Other questions in the Reflec-tion Survey seek to transition from the games into deeper discussion. These other questionsoften take the following forms:

1. Comparing two game parameterizations (e.g. market with and without price ceiling)

2. Thinking through the assumptions of the game and asking whether all the relevantfeatures have been captured. If they haven’t, how would inclusion of those or otherfeatures alter predictions?

3. Generalizing results from the experiment beyond the classroom. Are there other settingwhere the insights gained in the experiment would also be useful? Are there limitationsto what has been shown?

3.5 Results presentationWhen presenting the results we recommend sequential presentation of data. The instructorcan use our interactive graphs to present the components of theory incrementally. This makesthe theory more digestible. Once theory is understood this allows the instructor to compareeconomic theory to economic outcomes. For each chapter in this document, we have links tovideo walking instructors through a standard presentation of results and where applicable wediscuss common data patterns.

3.6 Instructor and Student WorkbooksLet’s begin with the Student Workbook. We recommend instructors post the Student Work-book in their LMS for students to print. Each chapter of the Student Workbook contains four

sections:

- Warm-up questions

- Thinking through theory

- Experiment notes

- Further questions

As mentioned in Section 3.3, warm-up questions can be paired with video instructions tohelp students better understand the rules of the game. Experiment notes are useful to havestudents record their experimental decisions. This small act gives students more repetitionsmaking basic calculations. Also, the experiment notes section encourages students to writenotes about observations during game play. The “Thinking through theory” section focuseson ideas related to the theoretical prediction of the game. For some games it will be usefulfor students to complete this section prior to the experiment. For other games, completingthis section prior to participation will bias results. In each chapter we indicate whethera game should be played before or after instructors cover theory. Finally, “Furtherquestions” are intended to be used as homework related to the game.

Now we turn to the Instructor Workbook. Content for instructors is organized as follows:

- General Discussion

- Preparation

- Detailed Procedures

- Summary

In the General Discussion section we provide some background description of the game as wellas learning objectives and timing. In the Preparation section we clarify what students andinstructors should both do to prepare to participate in the experiment. In Detailed Proceduresmost of the step-by-step implementation of the module is contained in the module guide onthe Instructor Console. We link to that guide and in the Instructor Workbook provide asense of how the module guide and the Student Workbook can work in tandem. Finally, thesummary section provides bullet points for running the experiment in your class.

3.7 Playing our games out of classThere are two modes for playing games out-of-class: students play with each other or robots.If you’re comfortable with students playing with robots the solution is simple. Click the “AllPlay Only Robots” box in the General Panel of your game and increase the game durationto a window of time you want the game available to students (e.g. 48 hours). Once you press”Run Game” and ”Begin!” the game will be available for the next 48 hours. Whenever astudent participates during that window they will be embedded in a group (if N > 1) whereall other participants are robots. Documentation for robot strategies can be found at thebottom of most game guides. Now we turn to students playing with each other.

The greatest obstacle to students playing with their peers outside of class is coordinatingschedules. There are two solutions. First, you can easily create multiple playlists usingour copy feature and run those playlists at different times that accomodate your students.If you want to pre-specify dates/times for those playlists to run use our online schduler.2An additional option for simultaneous move games is to schedule long round durations (e.g.24 hours per round) so that each day individuals are submitting decisions. Email us atsupport@moblab.com if you have further questions about playing games outside of class.

2Note that while the scheduler will allow you to specify the date and time for a playlist to run someone willlikely still need to monitor the experimental session because robots are not automatically added to incompletegroups.

Chapter 4

Classroom Management

4.1 IntroductionEconomics begins and ends with scarcity. One of the most scarce resources is your time.This section describes tips to help you save time inside and outside of class, as well as somecommon administrative questions.

4.2 Enrolling students in your classWhen you create a class (as described in 2.3), our platform will generate a unique class codefor students to link to the class. There are two easy options for getting students onboard.First, you can use pre-built documents to get students onboard. You will need to fill inthe document with your Class Code. We recommend posting the document to your LMS oremailing students. Alternatively, you can invite students to join your class.

Before your first in-class use of MobLab set up an activity to run outside of class (e.g. theMobLab Pre-Class Survey). This will give students some familiarity with the platform beforethe main event.

4.3 Getting students logged inYou can reduce time needed for MobLab games by quickly getting students logged in. Hereis a link to our best practices on getting students logged in. If you run a survey before classstarts, there will be an active session for students to join.1

4.4 Student motivation and how to gradeInstructors often ask about student motivation in classroom experiments. This is still an openquestion for pedagogical research.2 Our experience at MobLab has been that students are

1In our MobLab “modules” we start each module with an “Open Session Survey” that is simply an infor-mational screen.

2Holt (1999) notes that monetary incentives, “are often unncessary in classroom exercises.” Dickie (2006)found that monetary incentives attenuated the benefits of classroom experiments on learning outcomes.Hecited crowding-out of intrinsic motivation as a possible explanation. More recent work by Rousu et al. (2015)suggests that monetary incentives can impact learning outcomes positively.

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sufficiently motivated through participation credit and an appeal to “think carefully” abouttheir decisions.3

3Without monetary incentives we predict similar average behavior with more variance. Why might thesesoft incentives work? Perhaps the context rich environment of MobLab screens reduces differences in behaviorbetween hypothetical and real rewards. The question of student motivation in lab experiments is an interestingarea for future research, but, currently we advise instructors that participation credit is sufficient.

Part II

Gains from Trade

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Chapter 5

Comparative Advantage

5.1 General DiscussionOne of the first lessons in economics is scarcity. In our comparative advantage game the scarceresource that must be allocated is time. Each student operates a food truck and divides30 minutes of time between producing burgers and fries. How much each food truck canproduce depends on their per minute productivity. Orange trucks have an absolute advantage,but, differences in opportunity cost between orange and blue trucks create opportunities forexchange. Each food truck only sells Combo meals consisting of one burger and one servingof french fries. So each student’s payoff is equal to the number of combos sold. For example,if a student prepares 16 burgers and 12 servings of fries, they are able to sell 12 Combos andthe payoff is 12 (i.e. payoff = min{burgers,fries}).

In the first game there is no trade, this provides a baseline for students and helps to familiarizestudents with the interace, opportunity cost, and payoff maximization. In the second game,students have can discover pareto-improving trades. Each student can propose burgers-for-fries trades that their partner may accept or reject. After all trade proposals have beenexhausted students can then finalize production decisions.

In the trade condition, you will often observe students engaged in partial specialization. Tradesadvance consumption beyond the set of possible bundles without trade. But, what studentsfind most shocking is that this trend to specialization happens even for trucks that have anabsolute advantage.

In what follows we present written material and videos related to learning objectives, class-room implementation, results presentation, and discussion.

5.2 Learning ObjectivesWith our Comparative Advantage Module, and the Student Workbook Chapter on Compar-ative Advantage, we expect students to achieve the following learning objectives:

- Understand that differences in opportunity costs lead to mutual gains from trade.

- Become familiar with the linear production model. With total inputs fixed, it highlightshow much of one good a student must give up producing in order to produce a unit ofanother good.

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5.3 Time RequirementGiven the difficulty of the underlying concepts, this chapter assumes you will run the classroomexperiment after introducing the concept of opportunity cost or gains from trade. By postingthe video instructions for the no-trade case onto your Learning Management System (LMS)you can preserve class time. The module should take between 30-35 minutes. Time for opendiscussion (following the results) may vary; but, this module can be done comfortably ineither a 50-minute or 75-minute class.

5.4 Detailed Instructions and CommentsStudent PreparationTo preserve class time, direct students to the video instructions that are posted in the studentworkbooks. Remind them that most games are better when everyone knows the rules (thedata will be better too). Also, if convenient, encourage students to be active listeners whilewatching the instructions and to complete the warm-up questions. If you are planning to playthe game after students have some knowledge of the theory of comparative advantage, the“Thinking through theory” section will be a useful review.

Instructor PreparationClick on the Modules tab and find the “Comparative Advantage: Workbook”. Add to thecenter console.

The associated module guide contains step-by-step instructions for running this experimentwith your students. Consider reading it before class — if only for inspiration. In the Compar-ative Advantage: Workbook module on the console there are four reflection questions. Feelfree to add, subtract, or modify these questions. If you need a brief tutorial on MobLab’ssurvey technology please see this video. Finally, before class consider watching a short videoon a standard presentation of the comparative advantage results.

Instruction Comprehension QuestionsThere are three comprehension questions in the module. These are quick assessments onrules of the game and payoff calculations (i.e. minimum of burgers and fries). There arealso two informational screens that remind students: Remember, after choosing how todivide your 30 minutes between Burgers and Fries, you must click Prepare Food!.

With the details button in the monitor tab you get real-time feedback on the distribution ofresponses to identify and correct errors in student understanding.

When there are no further questions click “Finish” on the instruction comprehension questions.

First Session – No Trade (One Round)The first session familiarizes students with the interface and the idea of opportunity cost andpayoff maximization. Encourage students to fill in the relevant information from their decisionscreen into their workbook.

Whenever students are ready, click “Begin”. Then inform students that the next round theywill have the opportunity to trade with a partner.

Second Session – TradeStudents now have experience with the idea of opportunity cost and time allocation. Informstudents that in this session they will have the opportunity to make trades. Watch the instruc-tion video for Comparative Advantage with trade. Then run the Instruction ComprehensionSurvey for the trade game. Remind students that their per minute productivities (i.e. truckcolor) might be different in this session. Encourage students to:

- Record their own production and consumption decisions

- Keep notes on their strategy, how they make proposals, or review trades

Whenever students are ready, click “Begin”. Whenever you are ready to end the game, click“Finish”.

Reflection SurveyHave students engage in reflection before you present the results. This is a great activity todo while the results load1 and has been shown to improve learning outcomes dramatically. Itwill also improve the quality of discussion in your class. If you have told students to recordtheir decisions and take notes let them know these notes will likely be helpful when answeringthese questions. There is one question included in the reflection survey:

1. Compare the trade and no-trade conditions, did you notice a difference in your pro-duction decisions (before trade, not after-trade)? If there were differences, why do youthink these differences happened? If your color truck changed between rounds, pay closeattention to how your decisions across conditions related to your per minute productiv-ities.

Feel free to add/subtract or modify the reflection questions to mesh with how you want topresent results and lead open discussion.

Results presentationIn the video presentation of results we advocate sequential presentation of information. Thiswill help students connect features of the game to economic theory. It also facilitates com-parison of theory to experimental outcomes.

For further reflection on the results and on elements of the game have students complete someor all of the “further questions” section in their student workbooks.

1You can pull up the results while the students are participating in a survey. Even if it is in the sameplaylist.

Summary

Here is shortened description of each step for in-class implementation:

- Step 1: Before Class: Click “Run Survey” on Open Session and “Begin!”. Thiscreates an active session for students to join. The session name students see will bethe name of the playlist you placed your game in. When you’re ready to start theInstruction Comprehension Survey click “Finish” on the open session.

- Step 2 Click “Run Survey” on Instruction Comprehension Survey (No Trade) and“Begin!”. When you’re ready to start the (No Trade) Game click “Finish” on theInstruction Comprehension Survey. The instruction comprehension survey and dis-cussion of answers typically take less than two minutes.

- Step 3 Click “Run Game” on the No Trade Game and “Begin!”. Remind studentsto click the “Prepare Food” button when they’re finished with their time allocation.When you’re ready to start the Trade Game, click “Finish” on the No Trade Game.The No Trade Game is scheduled to last 150 seconds.

- Step 4 Click the “i” button on the Trade Game. Click the Trade tab at the top ofthe pop-up. Watch the trade video. Close the window and click “Run Survey” onInstruction Comprehension Survey (Trade) and “Begin!”. Use real-time informationto correct misunderstandings. When you’re ready to start the Trade Game click“Finish” on the Instruction Comprehension Survey (Trade). The instruction com-prehension survey and discussion of answers typically take less than seven minutes.

- Step 5 Click “Run Game” on the Trade Game and click “Begin!”. Remind studentsto click the “Prepare Food” button when they’re finished with their time allocation.When you’re ready to start the Reflection Survey click “Finish” on the Trade Game.The round will last 180 seconds.

- Step 6 Click “Run Survey” on Reflection Survey and “Begin!”. While studentscomplete their reflection survey click the results icon on the Trade Game. Theresults will soon load. Students can participate in brief or extended reflection on thegame.

- Step 7 Discuss the results of the experiment with students. Discussion of theoryand data often takes around ten to fifteen minutes.

Part III

Markets

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Chapter 6

Supply and Demand: Convergenceto Equilibrium

6.1 General DiscussionOur Competitive Market game is based on a trading institution called the “double auction”(Smith, 1962). Buyers are given values that reflect diminishing marginal utility across unitsand sellers are given costs that reflect increasing marginal costs across units. These inducedvalues and costs form the demand and supply curves whose intersection yields the equilibriumprice-quantity prediction. In this market buyers compete with each other to bid up the price oforanges. At the same time, sellers compete to undercut the asking price of other sellers. Thissimultaneous competition differentiates the double auction from procurement or standardascending-auction formats. Another key difference is that information on bids and asks ispublic and centrally displayed.

In this game students receive points in the following manner. For buyers the payoff to eachtransaction is $V − $P where V is value and P is price. Their total payoff is given by thesum of this difference for all their transactions. For sellers the profit to each transaction is$P − $C where C is the cost. Their total payoff is given by the sum of this difference for alltheir transactions.

To say the double auction is reliable would be an understatement. Decades of experimentalresearch and experiences in the classroom show this trading institution yields convergenceto equilibrium price. And, with some repetition, it yields a good prediction of equilibriumquantity. The double auction is the most robust trading institution available and is perfectfor introducing students to the concept of supply and demand. We will also build on the Com-petitive Market game to illustrate the effects of shifts in supply and demand, price controls,as well as taxes and subsidies.

In what follows we present written material and videos related to learning objectives, class-room implementation, results presentation, and discussion.

6.2 Learning ObjectivesWith our Convergence Module, and the Student Workbook Chapter on Convergence, weexpect students to achieve the following learning objectives:

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- Become familiar with the vocabulary of the supply and demand framework.

- Show that competitive markets converge, without external guidance, to the price equat-ing quantity demanded and supplied.

6.3 Time RequirementThis chapter assumes you will run the classroom experiment after introducing the conceptof supply and demand to students. In that way, this experiment can be used to test theorystudents are familiar with. By posting the video instructions onto your Learning ManagementSystem (LMS) you can preserve class time. The module should take between 20-30 minutes.Time for open discussion (following the results) may vary; but, this module can be donecomfortably in either a 50-minute or 75-minute class.

6.4 Class SizeThe Convergence Module was designed with smaller classes (N < 100) in mind. For largerclasses consider adjusting the group size:

1. Group Size = 20

2. This will change the equilibrium price prediction from P = 1.12 to P = 1.15

3. This will change the equilibrium quantity prediction from Q = 13 to Q = 30

After making that change, you can click the Preview button to see there are now 20 peopleper group. We do not advise going much larger than 20, as some students may be frustratedby the speed at which Bids and Asks are accepted by others.

6.5 Detailed Instructions and CommentsStudent PreparationTo preserve class time, post video instructions and direct students to watch them before class.Most games are better when everyone knows the rules (the data will be better too). Also,if convenient, encourage students to be active listeners while watching the instructions andto complete the warm-up questions. Additionally, having students complete the “Thinkingthrough theory” section will be a useful review and help them to notice excess supply andexcess demand at work in the classroom experiment.

Instructor PreparationClick on the Modules tab. Select Principles of Micro and “Convergence: Workbook”. Add tothe center console.

The associated module guide contains step-by-step instructions for running this experimentwith your students. Consider reading it before class — if only for inspiration. In the Con-vergence: Workbook module on the console there are three reflection questions. Feel free toadd, subtract, or modify these questions. If you need a brief tutorial on MobLab’s surveytechnology please see this video. Finally, before class consider watching a short video on astandard presentation of the double auction results.

Pump up the fun!

Write down the price-quantity prediction on a sheet of paper before class: “Over time,the price in this market will converge to $1.12 and 13 units will be sold in each period.”Seal the prediction in an envelope and hand it to a student at the start of class. This addsmore oomph to the results presentation when you instruct a student to open the envelopeand read aloud before you present the results.

Instruction Comprehension QuestionsThere are four comprehension questions in the module. These are quick assessments on rulesof the game and payoff calculations (i.e. consumer and producer surplus). With the detailsbutton in the monitor tab you get real-time feedback on the distribution of responses toidentify and correct errors in student understanding.

When there are no further questions click “Finish” on the instruction comprehension questions.

First Session – One Practice RoundThe practice round familiarizes students with the game screen and the mechanics of the doubleauction. During the practice round encourage students to:

- Record their transactions in their workbook

- Write down features of the game screen or rules that are confusing

Whenever students are ready click “Begin”. At the conclusion of the Practice Round promptstudents to reflect on their payoffs. Have any of them traded at a loss? How many unitsdid they buy or sell? Mistakes made in the practice round often result in teachable momentsand not at the expense of your data presentation. When there are no further questions, tellstudents the next session will be the real deal.

Second Session – Two RoundsStudents now have experience in the market and a better idea of what decisions to make.Remind them their roles might be different in this session. Encourage students to:

- Record their own transactions in the student workbook

- Keep notes on their strategy and whether their strategy evolves

Whenever students are ready click “Begin”. Whenever you are ready to end the game, click“Finish”.

Reflection SurveyHave students engage in reflection before you present the results. This is a great activity todo while the results load1 and has been shown to improve learning outcomes dramatically. Itwill also improve the quality of discussion in your class. If you have told students to recordtheir decisions and take notes let them know these notes will likely be helpful when answeringthese questions. There are three questions included in the reflection survey:

1. Likely there were a number of bids and asks on the screen that would have resulted inpositive profit. What was your approach to choosing which offers to accept?

2. When you submitted your first (circle one) bid or ask did others accept it immediately?Or, did you need to revise your bid upward or ask downward? What did you learn fromeither experience?

3. Choose all that apply

- In this game the good traded was homogenous.1You can pull up the results while the students are participating in a survey. Even if it is in the same

playlist.

- In this game there were a large number of traders in my group.- In this game goods could be divided into smaller and smaller units.- In this game buyers and sellers were price-takers.- In this game buyers only had information on their own values.- In this game sellers only had information on their own costs.- In this game there was free-entry and exit.

Feel free to add/subtract or modify the reflection questions to mesh with how you want topresent results and lead open discussion.

Results presentationIn the video presentation of results we advocate sequential presentation of information. Thiswill help students connect features of the game to economic theory. It also facilitates com-parison of theory to experimental outcomes.

For further reflection on the results and on elements of the game have students complete someor all of the “further questions” section in their student workbooks.

Summary

Here is shortened description of each step for in-class implementation:

- Step 1: Click “Run Survey” on Open Session and “Begin!”. This creates an activesession for students to join. The session name students see will be the name ofthe playlist you placed your game in. When you’re ready to start the InstructionComprehension Survey click “Finish” on the open session. Before Class.

- Step 2 Click “Run Survey” on Instruction Comprehension Survey and “Begin!”.Use real-time information to correct misunderstandings. When you’re ready tostart the Practice Round click “Finish” on the Instruction Comprehension Survey.The instruction comprehension survey and discussion of answers typically take lessthan five minutes.

- Step 3 Click “Run Game” on the Practice Round Game and “Begin!”. This offersanother good opportunity to correct misunderstandings. When you’re ready to startthe Two Round Game click “Finish” on the Practice Round Game. The practiceround and discussion typically take less than four minutes.

- Step 4 Click “Run Game” on the Two Round Game and “Begin!”. Encourage stu-dents to keep track of their transactions. When you’re ready to start the ReflectionSurvey click ”Finish” on the Two Round Game. Each round in the two round gamelasts for two minutes. Between the first and second round students have 20 secondsto reflect on their Round 1 decisions.

- Step 5 Click “Run Survey” on Reflection Survey and “Begin!”. While studentscomplete their reflection survey click the results icon on the Two Round Game. Theresults will soon load. Students can participate in brief or extended reflection on thegame.

- Step 6 Discuss the results of the experiment with students. Discussion of theoryand data often takes less than ten minutes.

Chapter 7

Asset Markets: Bubbles andCrashes

7.1 IntroductionIn the asset market, students buy and sell assets in a double auction format. There is acommon dividend payment for assets at the end of the round. Dividend payments are drawnat random, with a 50-50 chance the dividend is 40 cents or 100 cents. There is zero redemptionvalue for stocks. Therefore, stock value declines toward zero across rounds.

The asset market is perhaps the most interesting economics experiment. While scholarspoint to“Tulipmania”, the “South China Sea” bubble, etc as examples, how do they knowthose sudden increases and contractions in price were really bubbles? What is the “real” or“fundamental value” of an asset?1 Because it is possible that price changes simply reflectunderlying changes in market conditions, or changes in fundamental value, we need a morecontrolled environment. Economics experiments on asset markets can control both marketconditions and fundamental value. Thus, when prices depart substantially from fundamentalvalue can claim it is a “bubble” with confidence.

In class, you may only be interested in showing the existence of bubbles and having a con-versation with students about how to calculate the expected value from dividend payments.But, this module also includes a brief section on the “speculative hypothesis” for bubble for-mation. In the conclusion of their seminal paper on Asset Markets, Smith et al. (1988) writethat bubbles are “due to agent uncertainty about the behavior of others.”2 The uncertainbehavior is whether or not the agent can buy at a very high price and still sell it to someoneelse at an even higher price.

This “theory of a greater fool” can help to rationalize bubbles. To help illustrate the logic,we suggest using our Keynsian Beauty Contest Game. In this game, students are embedded

1Scholars such as Shiller (2006) have stated that a bubble is, “a situation in which news of price increasesspurs investor enthusiasm, which spreads by psychological contagion from person to person, in the processamplifying stories that might justify the price increases and bringing in a larger and larger class of investors …despite doubts about the real value of an investment.” This requires us to have a sense of the “real value” ofan asset or some “fundamental value”

2Here is the full quote, “What we learn from the particular experiments reported here is that a commondividend, and common knowledge thereof is insufficient to induce initial common expectations. As we interpretit this is due to agent uncertainty about the behavior of others. With experience, and its lessons in trial-and-error learning, expectations tend ultimately to converge and yield an REM equilibrium.”

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in a group with others and asked to guess a number between 0 and 100 that is closest to 2/3the average of all the guesses. As Richard Thaler notes, “Keynes’s beauty-contest analogyremains an apt description of what money managers do. Many investors call themselves “valuemanagers”, meaning they try to buy stocks that are cheap. Others call themselves “growthmanagers”, meaning they try to buy stocks that will grow quickly. But of course no one isseeking to buy stocks that are expensive or stocks of companies that will shrink. So whatthese managers are really trying to do is buy stocks that will go up in value — or, in otherwords, stocks that they think other investors will later decide should be worth more.”

7.2 Learning ObjectivesFor the Asset Market Module we have the following learning objective:

- Show students speculative bubbles can form even if the asset’s terminal value and dis-tribution of dividends are common knowledge.

7.3 Time RequirementThis chapter assumes you will run the classroom experiment before introducing the conceptof stock valuation and bubbles. By posting the video instructions onto your Learning Man-agement System (LMS) you can preserve class time. The module should take between 20-30minutes. Time for open discussion (following the results) may vary; but, this module can bedone comfortably in either a 50-minute or 75-minute class.

7.4 Class SizeThe Asset Market Module was designed with smaller classes (N < 100) in mind. For largerclasses consider adjusting the group size:

- Group Size = 40

If you make that change, you can click the Preview button to see there are now 40 people pergroup.

7.5 Detailed Instructions and CommentsStudent PreparationTo preserve class time, post video instructions and direct students to watch them before class.Most games are better when everyone knows the rules (the data will be better too). Also, ifconvenient, encourage students to be active listeners while watching the instructions and tocomplete the warm-up questions from the corresponding chapter in the student workbook.

Instructor PreparationClick on the Modules tab. Select Principles of Macro and “Asset Market: Workbook”. Addto the center console.

The associated module guide contains step-by-step instructions for running this experimentwith your students. Consider reading it before class — if only for inspiration. In the AssetMarket: Workbook module on the console there are three reflection questions. Feel free toadd, subtract, or modify these questions. If you need a brief tutorial on MobLab’s surveytechnology please see this video. Finally, before class consider watching this short video on astandard presentation of the asset market results. We suggest also viewing our results videoof the Keynsian Beauty Contest Game.

Pump up the fun!

As a kid, didn’t you love popping bubbles? Write on a piece of paper, “At most, assetswill pay a $1 dividend. They could pay as little as 40 cents. There are ONLY five tradingperiods remaining in this experiment. Think about that for a minute.” Seal the paper inan envelope before class and have a student volunteer open it, and read the words aloud,in class after the fifth trading period. Watch the transaction prices crash back to theintertemporal competitive equilibrium.

Instruction Comprehension QuestionsThe Instruction Comprehension Survey includes a review of the rules and two comprehen-sion questions. One question is related to the market mechanism. The other is related tocalculating payoffs. These should be quick questions, especially if the students completedthe warm-up questions from the corresponding chapter in the student workbook. With thedetails button in the monitor tab you get real-time feedback on the distribution of responsesto identify and correct errors in student understanding.

When there are no further questions, click “Finish” on the instruction comprehension ques-tions.

First Session – Asset MarketThe first session is a 10 round Asset Market Game. Each round lasts 60 seconds with brieffeedback following each round. Before the game encourage students to:

- Record their transactions in their workbook

- Keep notes about observations related to the game

Whenever students are ready, click “Begin”. Whenever you are ready to end the game, click“Finish”. You can then transition to the second session.

Second Session – Keynsian Beauty ContestTell students that before discussion the asset market results you want them to participate in abrief game sometimes called a “guessing game”. They will each guess a number between 0 and100. The goal is to guess the number closest to 2/3 of the average of all guesses. Encouragestudents to:

- Write down their rationale for why they chose a particular number

Whenever students are ready, click “Begin”. Whenever you are ready to end the game, click“Finish”. Before you present the results from the two experiments have students complete theReflection Survey.

Reflection SurveyHave students engage in reflection before you present the results. This is a great activity todo while the results load3 and has been shown to improve learning outcomes dramatically. Itwill also improve the quality of discussion in your class. If you have told students to recordtheir decisions and take notes let them know these notes will likely be helpful when answeringthese questions. There are three questions included in the reflection survey:

1. What was your approach to buying and selling stocks in this market and did yourapproach change in subsequent rounds?

2. How do you think behavior in the beauty contest game (guessing between 0 and 100)related to the asset market?

3. This experiment often demonstrates that asset markets bubble (i.e. trade well aboveexpected value and sometimes even the max stock value). How would you identifybubbles in the “real world”?

Feel free to add/subtract or modify the reflection questions to mesh with how you want topresent results and lead open discussion.

Results presentationIn the video presentation of results we advocate for instructors to find a group where bubbleformation is clear first and then to discuss results where asset bubbles may not be as clear.There is often heterogeneity even within the same class. See this video for a standard presen-tation of the asset market results. When you follow up with the question about what can helpto rationalize the existence of bubbles it will be useful to discuss the idea of level-k reasoningfrom the Keynsian Beauty Contest results here. Higher level reasoners may believe there arelower level reasoners out there to unload assets. But, as the end of the game becomes cleareven those boundedly rational individuals will become aware of the declining value of theasset.

For further reflection on the results and on elements of the game have students complete someor all of the “further questions” section in their student workbooks.

Summary

Here is shortened description of each step for in-class implementation:

- Step 1: Click “Run Survey” on Open Session and “Begin!”. This creates an activesession for students to join. The session name students see will be the name ofthe playlist you placed your game in. When you’re ready to start the InstructionComprehension Survey click “Finish” on the open session. Before Class.

3You can pull up the results while the students are participating in a survey. Even if it is in the sameplaylist.

- Step 2 Click “Run Survey” on Instruction Comprehension Survey and “Begin!”.Use real-time information to correct misunderstandings. When you’re ready tostart the First Session click “Finish” on the Instruction Comprehension Survey.The instruction comprehension survey and discussion of answers typically take lessthan four minutes.

- Step 3 Click “Run Game” on the Asset Market Game and “Begin!”. Encouragestudents to keep track of their transactions and dividend payments. When you’reready to start the Keynsian Beauty Contest game, click “Finish” on the Asset MarketGame.The Asset Market Game will typically take 10 minutes since each round lasts60 seconds.

- Step 4 Inform students about the rules of the Keynsian Beauty Contest Game.Students are embedded in a group with all other classmates and asked to guessa number between 0 and 100 that is closest to 2/3 the average of all the guesses.Make sure group size is equal to, or greater than, the number of students in yourclass. Then, click “Run Game” on the Keynsian Beauty Contest Game and “Begin!”.When you’re ready to start the Reflection Survey click ”Finish” on the KeynsianBeauty Contest. The Keynsian Beauty Contest Game is a one shot game that lastsat most 60 seconds (less time if students in the group quickly submit their guesses).Also, you can click ”Finish” earlier than the 60 seconds and the results will be basedon all submissions up to that point.

- Step 5 Click “Run Survey” on Reflection Survey and “Begin!”. While students com-plete their reflection survey click the results icon on the Keynsian Beauty Contestand minimize those results. Then, click the results icon on the Asset Market Gameand use the checkboxes in the legend to hide all pieces of information so you cancontrol the flow of information to your students.Students can participate in brief orextended reflection on the game.

- Step 6 Discuss the results of the asset market experiment with students. Thendiscuss the logic of the Keynsian Beauty Contest Game with students and relateit to the Asset Market. Discussion of theory and data often takes less than tenminutes.

Chapter 8

Labor Market with UnemploymentInsurance

8.1 IntroductionIn the labor market, students are divided into 16-person markets, with 12 workers and 4 firms.Firms post wage offers and workers decide whether or not to accept those wages. Firms canhire up to three workers and receive revenue from each worker hired. This is subject todiminishing marginal revenue product. Workers have an opportunity cost to work called their“value of staying at home”, but, unemployment insurance adds additional opportunity cost.In all conditions, workers can only accept one wage offer.

The first game in this module is a baseline labor market without intervention. The secondgame is a labor market with unemployment insurance. In the non-intervention game theequilibrium in this market is W=$8.20 and Q=11. In the second game workers that do notaccept a wage offer receive $5 of unemployment insurance. This increases the opportunitycost to workers and the new equilibrium prediction is W=$10.60 and Q=6. This interventionshould result in noticeably fewer labor market transactions.

8.2 Learning ObjectivesFor the Labor Market Module we have the following learning objective:

- Show that in a competitive market equilibrium wage rates are determined by themarginal product of the final worker hired.

- Students experience how unemployment insurance increases their opportunity cost tosupplying labor. It also leads to a reduction in the number of workers finding it attractiveto work which increases structural unemployment as well as an economy’s natural rateof unemployment.

8.3 Time RequirementThis chapter assumes you will run the classroom experiment before a discussion of labormarkets. By posting the video instructions onto your Learning Management System (LMS)

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you can preserve class time. The module should take between 20-30 minutes. Time for opendiscussion (following the results) may take a while. This game often sparks a lot of discussion.But, the module should be comfortably done in a 50-minute or 75-minute class.

8.4 Class SizeThe Labor Market Module was designed with smaller classes (N < 100) in mind. For largerclasses consider adjusting the group size:

- Group Size = 24

This will result in a new equilibrium prediction of W=$8.23 and Q=17. If you make thatchange, you can click the Preview button and the results from the Preview to see there arenow 24 people per group.

8.5 Detailed Instructions and CommentsStudent PreparationTo preserve class time, post video instructions and direct students to watch them before class.Most games are better when everyone knows the rules (the data will be better too). Also, ifconvenient, encourage students to be active listeners while watching the instructions and tocomplete the warm-up questions.

Instructor PreparationClick on the Modules tab. Select Principles of Macro and “Labor Market: Workbook”. Addto the center console.

The associated module guide (need to get this up!) contains step-by-step instructions forrunning this experiment with your students. Consider reading it before class — if only forinspiration. In the Labor Market: Workbook module on the console there are three reflectionquestions. Feel free to add, subtract, or modify these questions. If you need a brief tutorialon MobLab’s survey technology please see this video. Finally, before class consider watchingthis short video on a standard presentation of the labor market results.

Instruction Comprehension QuestionsThe Instruction Comprehension Survey includes a review of the rules and two comprehensionquestions on firm and worker rationality. Firms should hire workers where marginal revenueproduct exceeds wage. Workers should accept an offer if the wage exceeds their value ofstaying at home. These should be quick questions. With the details button in the monitortab you get real-time feedback on the distribution of responses to identify and correct errorsin student understanding.

When there are no further questions, click “Finish” on the instruction comprehension ques-tions.

First Session – Labor Market (No Intervention)The first session is a two round labor market game. Each round lasts 120 seconds with brieffeedback following each round. Before the game encourage students to:

- Record their transactions in their workbook

- Keep notes about observations related to the game

Whenever students are ready click “Begin”. Whenever you are ready to end the game, click“Finish”. You can then transition to the second session.

Second Session – Labor Market with Unemployment InsuranceBe sure to remind students that the rules to the labor market are slightly different in thesecond session. In this session students assigned the role of workers will have $5 unemploymentinsurance. This means that when workers do not accept an offer they will receive their valueof staying at home plus the unemployment insurance. Encourage students to:

- Record their transactions in their workbook

- Keep notes about observations related to the game

Whenever students are ready, click “Begin”. Whenever you are ready to end the game, click“Finish”. Before you present the results from the two experiments, have students completethe Reflection Survey.

Reflection SurveyHave students engage in reflection before you present the results. This is a great activity todo while the results load1 and has been shown to improve learning outcomes dramatically. Itwill also improve the quality of discussion in your class. If you have told students to recordtheir decisions and take notes let them know these notes will likely be helpful when answeringthese questions:

1. In this market, who are the consumers? Who are the suppliers? Provide an explanationfor why the demand curve slopes downward and the supply curve slopes upward.

2. List two ways in which this market is different from labor markets in the proverbial“real world”. How do these differences affect how we think about the predictions of thislabor market model and/or unemployment insurance?

Feel free to add/subtract or modify the reflection questions to mesh with how you want topresent results and lead open discussion.

Results presentationIn the video presentation of results we advocate for instructors to mute the screen and orga-nize their results presentation while students complete the reflection survey. Toggle betweenrounds. Likely you will notice the second round data in both conditions is closer to theequilibrium prediction. See this video for a standard presentation of the labor market results.

Summary

Here is shortened description of each step for in-class implementation:

- Step 1: Click “Run Survey” on Open Session and “Begin!”. This creates an activesession for students to join. The session name students see will be the name ofthe playlist you placed your game in. When you’re ready to start the InstructionComprehension Survey click “Finish” on the open session. Before Class.

- Step 2 Click “Run Survey” on Instruction Comprehension Survey and “Begin!”.Use real-time information to correct misunderstandings. When you’re ready tostart the First Session click “Finish” on the Instruction Comprehension Survey.The instruction comprehension survey and discussion of answers typically take lessthan four minutes.

1You can pull up the results while the students are participating in a survey. Even if it is in the sameplaylist.

- Step 3 Click “Run Game” on the First Session and “Begin!”. Encourage students tokeep track of their transaction(s) and to note on their game screen what is happeningto transaction prices across time. When you’re ready to start the Second Sessionclick “Finish” on the First Session.The Labor Market (No Intervention) will typicallytake 5 minutes since each round lasts 120 seconds.

- Step 4 Inform students that their role may change in this round. Also, importantly,workers now receive unemployment insurance if they have not accepted a positionat the end of the round. This unemployment insurance is in addition to the valueof staying at home. Ask students if they have questions. Click “Run Game” onthe Second Session and “Begin!”. Encourage students to keep track of their trans-action(s) and to note on their game screen what is happening to transaction pricesacross time. When you’re ready to start the Reflection Survey, click ”Finish” onthe Second Session. The Labor Market with Unemployment Insurance will typicallytake 5 minutes since each round lasts 120 seconds.

- Step 5 Click “Run Survey” on Reflection Survey and “Begin!”. While studentscomplete their reflection survey click the results icon on the First and Second Ses-sions. Use the checkboxes in the legend to hide all pieces of information so you cancontrol the flow of information to your students. Students can participate in briefor extended reflection on the game.

- Step 6 Discuss the results of the labor market experiment with students. Discussionof theory and data often takes less than ten minutes; however, because of the policyrelevance of the game there can be a long extended discussion here.

Part IV

Monetary Issues

39

Chapter 9

Bank Run: Panics and DepositInsurance

9.1 General DiscussionEach student, in a group of six, deposits $100 at a bank, which is used to make a loan that willdefinitely be repaid after five days. Each day until repayment (or bank failure), each playersimultaneously chooses whether to withdraw, where the number of withdrawals is announcedto all. The bank can honor at most three withdrawals: with four or more the bank fails andthose who have not withdrawn lose their investment.1 If the bank does not fail, then all whohave not withdrawn receive $150 (the return on their investment).

The bank run can be viewed as a coordination game. If you believe others will withdraw thenthe best response is to withdraw. If you believe others will leave their money in the bank thenthe best response is to leave money in the bank. The function of deposit insurance is to alterpayoffs such that you want to leave money in the bank regardless of what others are doing.

9.2 Learning ObjectivesWith our Bank Run Module, and the Student Workbook Chapter on Deposit Insurance, weexpect students to achieve the following learning objectives:

- Students experience the importance of deposit insurance in reducing the downside ofa bank run. This insurance against losses decreases the likelihood of the event it wascreated to insure against.

9.3 Time RequirementThis chapter assumes you will run the classroom experiment before introducing the conceptsof insolvency and deposit insurance. By posting the video instructions onto your LearningManagement System (LMS) you can preserve class time. The module should take between

1In essence there is a zero percent reserve requirement in this game. The bank has all $600 of depositsloaned out. If the bank cannot honor all the depositors seeking withdrawals, it must liquidate. The liquidationrate is set to 60 percent so $600 × .60 = $360. It can honor at most three withdrawals. The fourth withdrawalmakes the bank insolvent.

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20-30 minutes. Time for open discussion (following the results) may vary; but, this modulecan be done comfortably in either a 50-minute or 75-minute class.

9.4 Class SizeThe Bank Run Module was designed with smaller classes (N < 100) in mind. For largerclasses consider adjusting the group size:

1. Group Size = 10

After making that change, you can click the Preview button to see there are now 10 peopleper group.

9.5 Detailed Instructions and CommentsStudent PreparationTo preserve class time, post video instructions and direct students to watch them beforeclass. Most games are better when everyone knows the rules (the data will be better too).Also, if convenient, encourage students to be active listeners while watching the instructionsand to complete the warm-up questions. We recommend that students do not complete the“Thinking through theory” section before participation, as it may bias the results.2

Instructor PreparationClick on the Modules tab. Select Principles of Micro and “Bank Run: Workbook”. Add tothe center console.

The associated module guide contains step-by-step instructions for running this experimentwith your students. Consider reading it before class — if only for inspiration. In the BankRun: Deposit Insurance module on the console there are two reflection questions followingthe game without deposit insurance and three reflection questions following the game withdeposit insurance. Review these questions in your MobLab console. Feel free to add, subtract,or modify these questions. If you need a brief tutorial on MobLab’s survey technology pleasesee this video. Finally, before class consider watching a short video on a standard presentationof the bank run results.

2The “Thinking through theory” section uses simple game theory. If your students have had exposure togame theory through their Principles of Micro course this may not be problematic to ask them to completeafter class.

Pump up the fun!

Run the game with the whole class in a single group! This creates a great shared expe-rience. Additionally, you could have students write down their prediction about whetherthe bank will fail (Yes/No). Then tell all those people that predicted the bank wouldfail to move to one side of the room. Everyone that predicted the bank wouldn’t fail tomove to the other side of the room. Then have a student or two from each side make anargument about why the bank will fail (or not). Both may be right, there are multipleequilibria after all. Run the experiment and see what happens!

Instruction Comprehension QuestionsThere are four comprehension questions in the module. These are quick assessments on rulesof the game and how payoffs depend on the withdrawal decision as well as whether the bankis solvent at the time of withdrawal. With the details button in the monitor tab you getreal-time feedback on the distribution of responses to identify and correct errors in studentunderstanding.

When there are no further questions, click “Finish” on the instruction comprehension ques-tions.

First Session – Five Rounds, No Deposit InsuranceStudents experience the tension between leaving money in the bank to mature and not beingburned by bank failure. Encourage students to:

- Record their own decision each round and the withdrawals by other group members

- Keep notes on their strategy and whether their strategy evolves

Whenever students are ready, click “Begin”. Likely, as banks fail, you will hear sighs andexclamations. Whenever you are ready to end the game, click “Finish”.

Second Session – Five Rounds, Deposit InsuranceMany students have experienced the specter of bank runs. Remind them they will be indifferent groups (helps to reset their pessimism). Also, inform them that now there is 100%deposit insurance so if the bank becomes insolvent at a minimum they will receive $100 back.Encourage students to:

- Record their own decision each round and the withdrawals by other group members

- Keep notes

Whenever students are ready, click “Begin”. Whenever you are ready to end the game, click“Finish”.

Reflection SurveysHave students engage in reflection before you present the results. This is a great activity todo while the results load3 and has been shown to improve learning outcomes dramatically. Itwill also improve the quality of discussion in your class. If you have told students to recordtheir decisions and take notes let them know these notes will likely be helpful when answeringthese questions.

There are five questions included in the reflection surveys. The goal of the first two reflectionquestions is to get students to articulate the idea of a best response. You may find you don’tneed to run a survey to do this. The remaining reflection questions engage students withdeeper free-text responses meant to spur open discussion. Here are all the questions below:

1. If you knew everyone in your group was choosing withdraw, what would you do?

2. If you knew everyone in your group was going to leave their deposit in the bank, whatwould you do?

3. Compare the two games. Did deposit insurance change your approach to the game? Ifso, why?

4. Bank runs happen because depositors fear they will not be able to access their money.We have seen deposit insurance reduces these fears and therefore reduces bank runs. Ifdeposit insurance eliminates bank failure, how much does the policy cost? Who paysthis cost?

5. Economists are trained to identify tradeoffs and possible unintended consequences.While you saw deposit insurance alleviates panic there might be a downside to thiskind of insurance. What is the downside? Who ends up shouldering the risk of bankinsolvency? How will the presence of this insurance affect the types of loans that banksmight make?

3You can pull up the results while the students are participating in a survey. Even if it is in the sameplaylist.

Feel free to add/subtract or modify the reflection questions to mesh with how you want topresent results and lead open discussion.

Results presentationIn the video presentation of results we present data where half of the banks fail. However, itis possible that students will coordinate on the leave-in-bank equilibrium. Later in the resultsvideo we discuss how you can implement “forced withdrawals” to simulate a macroeconomicshock that nudges students toward bank failure.

For further reflection on the results and on elements of the game have students complete someor all of the “further questions” section in their student workbooks.

Summary

Here is shortened description of each step for in-class implementation:

- Step 1: Click “Run Survey” on Open Session and “Begin!”. This creates an activesession for students to join. The session name students see will be the name ofthe playlist you placed your game in. When you’re ready to start the InstructionComprehension Survey click “Finish” on the open session. Before Class.

- Step 2 Click “Run Survey” on Instruction Comprehension Survey and “Begin!”.Use real-time information to correct misunderstandings. When you’re ready tostart the First Session click “Finish” on the Instruction Comprehension Survey.The instruction comprehension survey and discussion of answers typically take lessthan four minutes.

- Step 3 Click “Run Game” on the ”No Deposit Insurance” Game and “Begin!”.Encourage students to keep track of their decision and the withdrawal decisions ofother group members. When you’re ready to present the results for the No DepositInsurance Game, click “Finish”.Each round is set to last 45 seconds. This sessionwill typically take less than five minutes.

- Step 4 Click “Run Survey” on Reflection Survey and “Begin!”. While studentscomplete their reflection survey click the results icon on the “Bank Run” Game.The results will soon load. Whenever you are ready to review the brief ReflectionSurvey click “Finish” and review results with students.

- Step 5 Discuss the results of the “Bank Run” Game with students.Discussion oftheory and data often takes less than eight minutes.

- Step 6 Click “Run Game” on the ”Bank Run (Deposit Insurance)” Game and“Begin!”. Encourage students to keep track of their transactions. When you’reready to review the results of the game click “Finish”.

- Step 7 Discuss the results of the “Bank Run (Deposit Insurance)” Game withstudents. The first review of results takes longer. Results presentation here areoften short (approximately 2-3 minutes) and simply demonstrate the power of depositinsurance. Open discussion based on the reflection survey can be quite extendedthough.

- Step 8 Click “Run Survey” on Final Reflection Survey and “Begin!”. The Final Re-flection Survey is deeper than the earlier Reflection Survey. Students can participatein brief or extended reflection on the game.

Bibliography

Allgood, Sam, William B. Walstad, and John J. Siegfried. “Research on Teaching Economicsto Undergraduates”. In: Journal of Economic Literature 53 (2015), pp. 285–325.

Cartwright, Edward and Anna Stepanova. “What do students learn from a classroom exper-iment: not much, unless they write a report on it.” In: Journal of Economic Education 43(2012), pp. 48–57.

Dickie, Mark. “Do classroom experiments increase learning in introductory microeconomics?”In: Journal of Economic Education 37 (2006), pp. 267–288.

Holt, Charles A. “Teaching economics with classroom experiments”. In: Southern EconomicJournal 65 (1999), pp. 603–610.

Rousu, Matthew C. et al. “Do Monetary Incentives Matter in Classroom Experiments? Effectson Course Performance”. In: Journal of Economic Education 46 (2015), pp. 341–349.

Shiller, Robert J. Irrational Exuberance. Princeton University Press, 2006.Smith, Vernon L. “An Experimental Study of Competitive Market Behavior”. In: Journal of

Political Economy 70 (1962), pp. 111–137.Smith, Vernon L., Gerry L. Suchanek, and Arlington W. Williams. “Bubbles, Crashes, and En-

dogenous Expectations in Experimental Spot Asset Markets”. In: Econometrica 56 (1988),pp. 1119–1151.

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