Simulations and games in economics education
Encyclopedia
A simulation game is "a game
that contains a mixture of skill
, chance
, and strategy to simulate an aspect of reality, such as a stock exchange
". Similarly, Ruohomaki states that "a simulation game combines the features of a game (competition, cooperation, rules, participants, roles) with those of a simulation (incorporation of critical features of reality). A game is a simulation game if its rules refer to an empirical model of reality." A properly built simulation game used to teach or learn economics
would closely follow the assumptions and rules of the theoretical model
s within this discipline. An example of an economics simulation game that models the theoretical market structures, from perfect competition to pure monopoly, is Beat The Market.
Simulations supplement the standard lecture. Both computerized and non-computer based simulation and games show significant levels of growth in education (see Lean, Moizer, Towler, and Abbey, 2006; Dobbins, Boehlje, Erickson and Taylor, 1995; Gentry, 1990; and the links: Game Developers Conference 2008 and Serious Games Initiative.
A monopolistic competition simulation game can be used as an example in the standard economics classroom or for experimental economics. Economic experiments using monopolistic competition simulations can create real-world incentives that may be used in the teaching and learning of economics to help students better understand why markets and other exchange systems work the way they do. An explanation of experimental economics is given by Roth (1995).
Assumptions of monopolistic competition
A simulation game in monopolistic competition
needs to incorporate the standard theoretical assumptions of this market structure, including:
In a simulation of monopolistic competition, each firm must be small in size, and should not be able to influence the direction of the overall market. Yet each firm has some control over price owing to product differentiation. To be consistent with economic theory, the simulation model should allow entry of new to occur as long as profits are greater than normal, and economic profits exist. The entry of new firms will decrease the market price, and eventually cause economic profits to return to zero (see Baye, 2009).
Controllable decisions in monopolistic competition
To simulate monopolistic competition, the controllable firm decisions of the participants (students) must include, at a minimum, those specified in the standard theoretical model, including (see Baye, 2009):
Simulation game experience
From an educational point of view, students will have an “opportunity” to learn by their own observations and experience through participation in a simulation game (see Schmidt, 2003). Consistent with the theoretical model of monopolistic competition (see Baye, 2009), student participants would observe and experience that their pricing decisions are controlled by the market. They would “experience” that in the simulation they would have to lower their firm’s price to be competitive as new firms entered the market. In the long-run, they would see the impact of changing plant size. They would observe that the successful firms would take advantage of economies of scale, but would also be careful not to incur diseconomies of scale in the long-run. Students would experience that economic profits cannot be maintained in the long-run. They would see, first hand, that their accounting profits will inevitably decline and move closer to normal profits. This experience provides students an opportunity to learn (as a supplement to the lecture and readings) the economic messages of monopolistic competition.
Game
A game is structured playing, usually undertaken for enjoyment and sometimes used as an educational tool. Games are distinct from work, which is usually carried out for remuneration, and from art, which is more often an expression of aesthetic or ideological elements...
that contains a mixture of skill
Game of skill
A game of skill is a game where the outcome is determined mainly by mental and/or physical skill, rather than by pure chance.One benefit of games of skill is that they are a means of exploring one's own capabilities. Games encourage the player to look at, understand, and experience things...
, chance
Game of chance
A game of chance is a game whose outcome is strongly influenced by some randomizing device, and upon which contestants may or may not wager money or anything of monetary value...
, and strategy to simulate an aspect of reality, such as a stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
". Similarly, Ruohomaki states that "a simulation game combines the features of a game (competition, cooperation, rules, participants, roles) with those of a simulation (incorporation of critical features of reality). A game is a simulation game if its rules refer to an empirical model of reality." A properly built simulation game used to teach or learn economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
would closely follow the assumptions and rules of the theoretical model
Model (economics)
In economics, a model is a theoretical construct that represents economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified framework designed to illustrate complex processes, often but not always using...
s within this discipline. An example of an economics simulation game that models the theoretical market structures, from perfect competition to pure monopoly, is Beat The Market.
In economics education
Economics education studies recommend the adoption of more active and collaborative learning methodologies (Greenlaw, 1999). Simkins (1999) stated “… teaching practices, which rely heavily on the lecture format, are not doing enough to develop students’ cognitive learning skills, attract good students to economics, and motivate them to continue coursework in the discipline.” (p. 278). This is consistent with the results of a survey published in the American Economic Review by Allgood (2004) that shows that students “rarely take economics as a free elective – especially beyond principles.” (p. 5). More is needed to be done in the classroom to excite students about economics education.Simulations supplement the standard lecture. Both computerized and non-computer based simulation and games show significant levels of growth in education (see Lean, Moizer, Towler, and Abbey, 2006; Dobbins, Boehlje, Erickson and Taylor, 1995; Gentry, 1990; and the links: Game Developers Conference 2008 and Serious Games Initiative.
Example in monopolistic competition
Through a simulation game, students may participate directly in a market by managing a simulated firm and making decisions on price and production to maximize profits. An excellent review of the use of a successful market simulation is given by Motahar (1994) in the Journal of Economics Education.A monopolistic competition simulation game can be used as an example in the standard economics classroom or for experimental economics. Economic experiments using monopolistic competition simulations can create real-world incentives that may be used in the teaching and learning of economics to help students better understand why markets and other exchange systems work the way they do. An explanation of experimental economics is given by Roth (1995).
Assumptions of monopolistic competition
A simulation game in monopolistic competition
Monopolistic competition
Monopolistic competition is imperfect competition where many competing producers sell products that are differentiated from one another...
needs to incorporate the standard theoretical assumptions of this market structure, including:
- Many buyers and sellers
- Easy entry and exit
- Some degree of product differentiation
- Zero economic profits in the long-run
In a simulation of monopolistic competition, each firm must be small in size, and should not be able to influence the direction of the overall market. Yet each firm has some control over price owing to product differentiation. To be consistent with economic theory, the simulation model should allow entry of new to occur as long as profits are greater than normal, and economic profits exist. The entry of new firms will decrease the market price, and eventually cause economic profits to return to zero (see Baye, 2009).
Controllable decisions in monopolistic competition
To simulate monopolistic competition, the controllable firm decisions of the participants (students) must include, at a minimum, those specified in the standard theoretical model, including (see Baye, 2009):
- Firm price
- Advertising
- Firm production
- Plant Size
Simulation game experience
From an educational point of view, students will have an “opportunity” to learn by their own observations and experience through participation in a simulation game (see Schmidt, 2003). Consistent with the theoretical model of monopolistic competition (see Baye, 2009), student participants would observe and experience that their pricing decisions are controlled by the market. They would “experience” that in the simulation they would have to lower their firm’s price to be competitive as new firms entered the market. In the long-run, they would see the impact of changing plant size. They would observe that the successful firms would take advantage of economies of scale, but would also be careful not to incur diseconomies of scale in the long-run. Students would experience that economic profits cannot be maintained in the long-run. They would see, first hand, that their accounting profits will inevitably decline and move closer to normal profits. This experience provides students an opportunity to learn (as a supplement to the lecture and readings) the economic messages of monopolistic competition.
See also
- Experimental economicsExperimental economicsExperimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic experiments usually use cash to motivate subjects, in...
- Economics educationEconomics educationEconomics education or economic education is a field within economics that focuses on two main themes: 1) the current state of, and efforts to improve, the economics curriculum, materials and pedagogical techniques used to teach economics at all educational levels; and 2) research into the...
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- Business simulation
- Business simulation game
- Government simulation game
- Game (simulation)Game (simulation)A simulation game attempts to replicate various activities in "real life" in the form of a game for various purposes: training, analysis, or prediction. Usually there are no strictly defined goals in the game, just running around, playing as a character...