FEELE Lab Finance and Economic Experimental Laboratory at Exeter

1. FEELE LabFinance and Economic Experimental Laboratory at Exeter • Todd Kaplan • Dieter Balkenborg • Tim Miller FDTL5 Grant for Bringing Experimental Economics into the Classroom

2. Bringing Economic Experiments into the Classroom Objective: Put experiments into the undergraduate economics curriculum at the University of Exeter. Thanks to: Higher Education Academy in England for the £s. Economics Network (England) Dept. of Economics at Exeter. Steve Gjerstad, Denise Hazlett, Charlie Holt

3. Why use classroom experiments? • Inspires students. • Chamberlin 1948 ran a simple market experiment. • This inspired Vernon Smith to go into experimental economics. • Todd Kaplan was a student at Caltech 20 years ago. Experiments with Charlie Plott inspired him to switch majors to econ. • Memorable experience for students. • Brings students closer to research. Allows research to help teaching and teaching to help research. • We have embedded 48 experiments into 18 undergraduate modules at Exeter.

4. Types of Classroom Experiments • HandRun. • Quick raise hands (symmetric prisoners’ dilemma). • Sampling paper collection (2*2 games, currency attack). • More sophisticated (Pit market, Sloman’s Trade Game). • Computerized. • Web based: PHP or Java (Bertrand, Double Auction). • Locally based/installed (z-tree). • Homework. • Simple Q&A with feedback in class: (Rubinstein’s site). • More advanced Individual Choice experiments with some immediate feedback (Monty Hall). • Play against a fictitious/robot/prior human player (Holt: Traveler’s dilemma). • Students play each other at designated time. • Research. • Single lecture (Chamberlain) • Complete semester (Selten/Mitzkewitz/Uhlich, Iowa Pol. Stock Market) • Requirement to be a subject. (Psychology)

5. Hand run • Advantages: • Suitable for large lectures. • Some take just minutes. • Engaging for students . • Disadvantages: • May require careful preparation, including room structure. • May require assistants/volunteers. • May require lecturer w/ practice: Student experience may vary. • Data collection/entry takes time. Feedback may be delayed. (the next lecture) • One can only run for few rounds. • Some students may not be participating.

6. Handrun Hints: • Techniques for low setup costs. • At beginning of semester, cut simple strips of paper (you may want to use two colours). • Bring several plastic bags from home to collect answers. • Give verbal instructions/ display question. • Quick to collect and sample a few. • Display last year’s results. • Know what you are doing beforehand, particularly with assistants. • Example: Guessing game. • Guess a number 0 to 100. • The guess closest to 2/3 the average number wins a prize. • Ties will be broken randomly.

7. Graph of guesses (Exeter UGs) Average was 36.7 (winning guess 24.5), equilibrium is0! Six guesses were above 66.66

8. Exeter UG 2nd round guesses Average was 12.4 (winning guess 8.3) Todd’s quote “you shouldn’t ignore theory, even when it is wrong.” One guess was above 66.66

9. Computerized • Advantages: • Readily available, great for beginners, uniform experience. • Immediate results, data ready for evaluation • Disadvantages: • Experiments standardized, limited flexibility • Room requirements, split large lectures, use tutorials • May need trained teaching assistant • Equipment (PhP vs Java, handhelds) • Needs one hour of teaching time

10. Computer Experiment Hints • Try using two students per computer (cuts down on web surfing, email browsing and gossip). • Give instructions beforehand (helps foreign & dyslexic students). • Let students play all treatments in easiest order. (within subject treatments) • Example: Bertrand Competition. • Students act as firms in a market. • They choose prices each period. • Customers go to the firm with the lowest price.

11. Sample result: Bertrand Game Two Firms Fixed Partners Five Firms Random Partners Two Firms Random Partners “I learnt that collusion can take place in a competitive market even without any actual meeting taking place between the two parties.” “Some people are undercutting bastards!!! Seriously though, it was interesting to see how the theory is shown in practise.”

12. Homework • Advantages: • Saves lecture time • Less hassle • Many periods possible (no time limit) • Easy access to homework data • Disadvantages: • Typically not interactive • Participation rate can be low unless incentives are in place. • Hint: use some sort of incentive.

13. Research • Advantages: • RESEARCH • Low cost (saves recruitment costs). • Disadvantages: • Organization needs to be more careful than standard teaching experiments. • Limited communication between and to students.

14. Challenges for Classroom Experiments • Students • Lecturers • Module (Course) Structure

15. Challenges Students: • They have limited time too (both inside and outside the classroom). • Maintain attention (negative externality of both data and speed). • Assess performance/motivation (earnings is noisy, attendance has problems). • How can we write test (or homework) questions that require student to attend experiment? • Some may (correctly/incorrectly) resent being used for research experiments at a sacrifice of their studies.

16. Challenges Lecturers: 4 types: Eager, Interested but need support, hesitant, unwilling. • Need to want to try something new. • Need to sacrifice course time. • Need to think experiments are of value.

17. Challenges Classes: • Many courses don’t have experiments that fit directly into them (macro / finance). • Same experiments for different courses (avoid repeat). • Some experiments may require students to be in two courses. (Run an experiment in micro economics and analyze it for the statistics course.)

18. Rewards Students • Enjoyable, Interactive • Better grades (Emerson & Taylor, 2004) • Concrete learning experience (rather than abstract/mathematical formulas). • Some students do well in experiments but poor on tests (such as those with poor math skills). Lecturers • Richer teaching style -> evaluations • Promote experimental economics (preach what we practice).

19. How to use experiments Size can determine how: • Large lectures (>100): use short hand-run, homework • Medium Lectures (40<#<100): make use of computerized experiments in tutorials. • Small Lectures (<40). Possible to use computerized experiments in place of lectures Experiments seem to work well for all levels of students (even high school) Hints: • Usually do experiments before covering the material in the course. • Let students participate in preparation, execution and evaluation. (Especially in an experimental class.) • Relate some exam questions to experiments. • Don’t be too obsessed with preserving a research environment.

20. Exeter Games • On purpose same style as Veconlab (Holt). • Goal is to complement selection of experiments. • 14 computerized experiments. • Types are a mix of individual choice (homework) and interactive games.

21. Exeter Games Experiments • Bertrand Market (micro / IO) • Call Option (finance, homework) • Currency attack (macro) • Diamond Dybvig bank run (macro /banking) • Insurance (economics of social policy, micro) • Holdup Problem (corporate finance) • Kiotaki Wright fiat money (macro /banking) • Lemon Game (micro / IO, homework) • Monty Hall (statistics, homework) • Network Externalities (micro / IO) • Price Discrimination (micro, homework) • Team Draft (game theory) • Warren Buffet investment (finance) • Introductory Statistics (statistics)

22. How to find Exeter Games • Google for “Feele” to find the FEELE Laboratory homepage. • Ignore the large link “Register here”, which is for subjects to register for one of our research experiments. • Instead scroll down to “Access our website of teaching experiments”. • View list of experiments (short descriptions of each) • Experimenter access (soon to be you!) • Participant access (your students use this to log in; you use it to check that your experiment is set up correctly)

25. Brief descriptions of each of our experiments.

27. Click here to register as an experimenter and run your first experiment.

28. Start by registering your email address.

29. The Code Word is ‘deadsea’. Username will be based on your initials.

30. Check your details and confirm.

31. Username and Password will be emailed to you, after which you can log in here.

32. Enter details from registration email and click here.

33. Click here to create your first experiment.

34. Choose a code word to allow students to log in to your experiment.

35. Your students will need to know this Access Code to be able to log in to your experiment. Click here to configure, run and monitor your new experiment.

36. The new experiment is empty and you have to add the first session.

37. Click here to makes changes to the default configuration.

38. Enter the number of students in your class (default: 2). Enter the number of rounds you want to run (default: 1). Save your changes.

39. Useful feature: you can view the effects of your configuration changes on the subject instructions by clicking here. Don’t forget: you must start the experiment before the first subject can log in!

40. Click here to monitor subjects as they log in and view the results of the experiment.

41. Open a NEW browser window (not a tab), locate the FEELE homepage and click here to log in as a test subject in your new experiment.

42. Your students will log in here.

43. Consists of your Username (tk2), a hyphen (-) and whatever code word you chose when you created your experiment (network). The student enters his/her names here. (Note: you may enter “test” to suppress the display of subject instructions during testing.)

44. The student checks his/her details and confirms.

46. You now need to open a further 5 NEW browser windows (not tabs) and log in the remaining test subjects.

47. This is what a typical result set looks like.

48. Draws graph of results. Exports results to Excel (space delimited). Breakdown of test question responses.

49. Reminder of your configuration settings. Reminder of subject instructions.

50. Subjects often want to know who won!