An Interactive Group Teaching Method to Convey Economic Concepts

This note concerns an interactive method for teaching economics that we have been using for a while. It can be used as a supplement to traditional lecture-based teaching. Educationalists frequently say that lectures are one of the least efficient forms of teaching, but have given few clues as to what might serve as more suitable approaches for economics. While interactive teaching methods are not original, we were not aware of this form and have been more than pleased with the results. The approach grew out of the authors' experiences in presenting economics to mid-career policy analysts at the Ministry of Health.

In the past, our attempts at student participation in economics teaching have involved presentation of theory, followed by applications or questions on the theory. More recently we have reversed this process. We have encouraged students to think of possible structures by using class participation at the initial stage, before presenting the theory. An understanding can sometimes be gained by first considering an analogous system, after which the findings can be translated into the environment of interest. Care must be taken to ensure that the analogy is appropriate. This approach can free students from preconceived views on the area and is useful for identifying general principles and issues.

Take the principle that given a zero out of pocket price, consumers will continue to consume until extra units no longer provide them with additional satisfaction. An interactive example used in our Health Economics course that relates to moral hazard and insurance in health care markets is on the Web at http://econ.massey.ac.nz/cppe/papers/sbnzae.htm . Briefly the class (group) is divided into two group members who own a restaurant, the remainder comprising their customers. After the whole group select and put prices on a range of items to form an a la carte menu, the customers state what they would buy. We then tell the restaurateurs that they are going to offer a smorgasbord option, so that for some set price, customers can have as much as they want of the items from the menu. Although many variations are possible, the main problem for the restaurateurs is to decide a suitable price to charge. Once the price is set, the customers list the items that they would select from the smorgasbord option.

Invariably the restaurateurs set a smorgasbord price that results in a loss. In making changes to the smorgasbord option to correct for the loss, they end up replicating many policies adopted by insurance companies to deal with the problem of moral hazard (including adverse selection, specific coverage, co-insurance and deductibles).

We thought at first that it would be hard to get such examples, but found that it is actually much easier than anticipated. Similar sessions have been run in a research methods course by first setting up small group brainstorming about data and analysis for problems such as how to identify market structure, or measure income distribution. The students discuss the problem among themselves, then report back. They are then aware of the issues by the time we look at the standard approaches. With principles' material, we have applied the supply/demand model by first discussing topics like jury selection and gender pay equity. In these latter examples, some care has to be taken in structuring group discussion.

While not original as to content (nor politically correct these days), we have covered the 'no smoking' sign in our Economic Policy class and asked the group to arrive at a rational policy on smoking. This is an interesting way to introduce the idea of a Pareto improvement and the Kaldor-Hicks compensation criterion.

We found this approach to be very enjoyable and have been encouraged by the enthusiastic participation of students. This interactive method has added variety to the predominant method of lecturing students and has resulted in livelier sessions which, we believe, improves attention and retention. The standard theory-application approach often gets little response because thinking is already narrowly focused and a right/wrong situation has been created.

It has been particularly interesting to see that students who have completed many standard economics courses are not particularly advantaged. There is a difference between knowing economic theory and determining what economics has to offer in the context of a particular problem. This approach challenges them to identify relevant theory and to recognize the restrictions and simplifying assumptions that the application of theory often imposes.