Classroom Games

in Economics

Tuvana Pastine

Sept 19, 2014

Guessing Game

Pick a natural number from 1 to 100: 1, 2, 3, … ,100

AND THE WINNER IS:

The number closest to 2/3rd of the average of all guesses.

For instance:If average of class= 90

winner is number closest to 90*(2/3)=60

If average of class is 18winner is number closest to 18*(2/3)=12

What is the theoretical prediction?

100→66→44→29→ . . .

• 1997 Financial Times

Winner=15

Do people really behave as the theory predicts?

• Rationality

• Common Knowledge of Rationality

If not, what good is the theory?

Keynes’ Beauty Contest “The General Theory of Employment, Interest and Money” (1936)

Price Fluctuations in Equity Markets

Keynes’ Beauty Contest

“It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. . .

Keynes’ Beauty Contest

“. . . We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”

Greater Fool Theory

You may be a fool to pay as much as you did, but you are betting that there’s a greater fool down the road.

And if you’re right, then of course you aren’t being foolish.

Terminology:Terminology:

RationaliyRationaliyCommon knowledge of rationalityCommon knowledge of rationality

Keynes’ beauty contestKeynes’ beauty contestFundamental value and stock pricesFundamental value and stock prices

Greater fool theoryGreater fool theory

http://www.npr.org/blogs/money/2011/01/14/132906135/ranking-cute-animals-a-stock-market-experiment

Why Games

True Learning

Academic Evidence for:

• Higher Student and Teacher Satisfaction

• Weak Students versus Strong Students

• Girls versus Boys

http://www.marietta.edu/~delemeeg/games/

Pit Market40-60 minutes15-20 students

http://people.virginia.edu/~cah2k/pitmkttr.pdf

supply, demand, consumer surplus, producer surplus, equilibrium price and quantity

variations: sales tax, price ceiling