The Handbook for Economics Lecturers

In our experience, economic classroom experiments are a great way to introduce students to economic key concepts. They are fun for the students and for the teacher. While perfect teachers may not have to rely on anything but their charisma, both the interest of our students in the material we taught and our student evaluations improved with the introduction of this technique. In this chapter we want to discuss some effective teaching experiments and explain how and why we used them in our teaching. We will also describe how to run classroom experiments and which resources are available.

We will concentrate primarily on teaching experiments that are derived from research experiments and are hence based on a specific economic model and address a specific behavioural hypothesis. Independently there exists a tradition of using gaming, simulations and role-play in teaching. We will only occasionally refer to this approach, which is discussed (with several excellent examples) in a different chapter of the handbook.

Arguably, economics is developing into an experimental science and our teaching should appropriately reflect this development. All leading economics journals now regularly feature articles on experimental economics. The development was recognised when Daniel Kahneman and Vernon Smith obtained their Nobel prizes in 2002. Interestingly, Vernon Smith obtained his prize for showing that markets and economic theory work even under harsh conditions, while Kahneman’s work showed that the rationality assumptions underlying most of traditional economic theory do not accurately describe human behaviour even in simple decision situations.

Likewise, economic teaching experiments can be used to illustrate how economic concepts are helpful in explaining observable behaviour. They can also be used to discuss its limitations critically.

Economic experiments can be a great motivator. Vernon Smith himself was motivated in his research by his experience as a PhD student participating in market experiments carried out by Chamberlain. One of the authors became an economist because of his participation in economic research experiments. Many of the researchers who fostered the breakthrough in experimental research have started to use experiments in their teaching. In the words of Charles Holt (1999) classroom experiments have become ‘the most exciting new development in teaching economics’.

Taking advantage of this breakthrough and running your own classroom experiment is just a few keystrokes away via the Internet. It should not take more than a day to get acquainted, for instance, with Charlie Holt’s Veconlab.

There are also strong arguments that teaching experiments work most effectively in the classroom with pen-and-paper. We will compare the advantages and disadvantages of different ways of running experiments.