TEACHING ECONOMICS WITH CLASSROOM EXPERIMENTS
Charles A. Holt* Southern Economic Journal, January 1999, 65(3), 603-610

Abstract Classroom experiments are effective because students are placed directly into the economic environments being studied. This paper surveys some diverse applications, e.g. speculation and multiple markets, coordination games, voting and agendas, and a simple macroeconomy, with particular attention to practical details. After participating, students bring first-hand experience to the discussion, which enhances the effectiveness of the Socratic method, as opposed to traditional lectures. The papers surveyed here also enable bright undergraduates to run the experiments on their own classmates and lead the ensuing discussions, which creates a special kind of teaching/learning environment.

JEL codes: A22, C92

1. Introduction One of the most exciting recent developments in the teaching of economics is the increased use of classroom exercises that insert students directly into the economic environments being studied. For example, students who participate in market trading as buyers and sellers come away impressed with the strong pressures to trade at a uniform price. This reaction is then mixed with surprise when they later discover that the observed price standard is the competitive price determined by the intersection of supply and demand functions constructed from information that was not available to any single trader. Even when standard theories fail, they can fail in interesting ways, e.g. when trading prices for assets veer away from present value fundamentals during price bubbles (Ball and Holt, 1998). Regardless of the outcomes of classroom experiments, the structural parameters of standard theories are determined by individual incentives and the rules specified in the instructions, so theoretical predictions can be calculated and used as a benchmark of comparison. As economics has become more technical, even at the undergraduate