Academic journal article Journal of Private Enterprise

Using Experiments and Media to Introduce Game Theory into the Principles Classroom

Academic journal article Journal of Private Enterprise

Using Experiments and Media to Introduce Game Theory into the Principles Classroom

Article excerpt

I. Introduction

Recent research in behavioral psychology suggests that humor, games, and fantasy are more than just fun (Brown 2009).1 Plenty of play not only makes us happier, but also makes us smarter. Play helps conceptual memory to be developed by firing up the cerebellum and increasing neuron activity in the executive portion of the frontal lobe. A large number of pedagogical papers have emerged over the past twenty years suggesting that more "playful" methods of teaching economics are also more effective than the common "chalk and talk" strategies. These alternative pedagogical tools range from the use of media in the classroom2 to a variety of classroom demonstrations and experiments.3

In this educational note, I show how video clips from the popular British game show "Golden Balls" can be used as an effective pedagogical tool in teaching game theory to students in principles classes. In addition, I describe two short experiments that I use to demonstrate the prisoner's dilemma (PD) game and the tragedy of the commons. These supplemental classroom activities are meant to break the monotony of the typical lecture, bring some humor to the classroom, and get students reflecting on the underlying concepts by actively making choices. Unlike most classroom experiments, these short classroom activities can be performed in a few minutes and require minimal preparation time. I provide real incentives (usually in the form of extra credit points), allowing students to relate the studied material to their own fives and thus obtain a deeper grasp of its meaning and importance.

Teaching game theory in the principles course is important because students need a good understanding of the topic in order to better study a wide variety of business and economic phenomena. For example, the study of analytical anarchism often involves extensive use of game theory.4 My experience shows that students not only enjoy these classroom activities, but also demonstrate greater interest in the subject matter, better concentration during lectures, and ultimately superior understanding of the studied material.

II. Split or Steal

When teaching game theory, I usually start with the classic version of the PD game.5 What makes the PD so attractive from a pedagogical point of view is its simplicity and applicability to a broad range of human interactions. For example, psychologists have used the PD to model addiction, environmental scientists have used it to describe climate change, and political scientists have used it to explain the rise of the state (Mueller 2003). Economists often use the PD game to explain collusive behavior in oligopolistic markets.

While students often find the classic version of the PD quite interesting, it is nevertheless a situation that is not very common in real fife, so they tend to be suspicious about the assumptions, outcome, and implications of the game. This is why I show them several video clips from the popular TV show "Golden Balls."6 In the final round of this show, the two remaining contestants play a onetime version of the PD game called "Split or Steal." Contestants are asked to choose one of two golden balls-one with "SPLIT" printed inside and one with "STEAL"-to determine how the jackpot will be divided between them. If both players choose the "split" ball, the jackpot is equally divided. If one player chooses to steal and the other chooses to split, the player that steals gets all of the money while the other player gets nothing. Finally, if both players decide to steal, no one gets anything. This show provides an excellent natural experiment of the PD in which real people play for real payoffs, often substantial amount of money. Figure 1 shows the payoff matrix for players 1 and 2 in a generalized version of the game. The payoffs for player 1 are in circles and those of player 2 in squares. The payoffs represent the proportion of the jackpot that players capture.

This game is very similar to the PD. …

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