A classroom market for extra credit: A semester-long experiment

ABSTRACT

This article describes an innovative pedagogical technique, applicable to most economics courses, that offers students a deeper understanding of market equilibrium, inflation, real and nominal interest rates, intertemporal choice, and financial markets. Students earn extra credit, pooled together for the entire class, by correctly answering in-class clicker questions. Correctly answering questions also earns students classroom currency, which they can use to “purchase” extra credit from the pool. The creation and purchase of extra credit establishes an endogenous market system in which the price of extra credit clears the market. The experiment can be augmented with (a) a bank that allows students to borrow classroom currency, (b) bonds to enable direct transfers between students, and (c) stocks that produce randomly generated payouts.

KEYWORDS:

• Classroom market
• clicker questions
• extra credit
• in-class experiment

JEL CODES:

• A22
• D90
• E40

Acknowledgements

The author thanks Alan Green for introducing him to Socrative.com and also the seminar participants at the Minneapolis AEA Conference for Teaching and Research in Economic Education for valuable comments and suggestions.

Notes

1. See, for example, Emerson and Taylor (2004); Ball, Eckel, and Rojas (2006); Dickie (2006); Durham, McKinnon, and Schulman (2007); and Staveley-O'Carroll (2015).

2. Bergstrom and Miller (2000) provided many examples of in-class demonstrations.

3. For example, Socrative.com, a platform that allows students to use their smartphones as clickers, is available for all smartphones.

4. The author is currently developing a Web-based application to help instructors easily implement this experiment in their courses. More specifically, it will automate most aspects of the EC market (keeping track of student purchases, EC prices, EC awarded, etc.). Once finished, the application will be free for use by any interested instructor. Until it is completed, instructors can obtain a preset Excel spreadsheet from the author that can be used as a template for this experiment.

5. Notice that the price calculated in this section is a market-clearing price rather than an equilibrium price. This is because students do not get to observe the price of EC before submitting their desired expenditure levels and thus do not get to create a demand schedule for EC. Once the market-clearing price is revealed after the assignment is returned, it is probable that many students will wish to have spent more (if the price was low) or fewer (if the price was high) Gronks on the assignment. Although the true equilibrium price cannot be determined in this section, a Nash equilibrium for the experiment can be found as described in the macroeconomic theory subsection.

6. This implies that a student who spends 25 Gronks on the homework assignment raises his or her course grade by one point; likewise, a student who spends 8 Gronks on the midterm raises their course grade by one point.

7. The author's Web site, http://www.babson.edu/Academics/faculty/profiles/Pages/staveley-ocarroll-josh.aspx, contains four appendices (A, B, C, and D) that respectively provide detailed instructions on how to set up the Excel spreadsheets needed to track the classroom economy, how the instructor should run the experiment in class, what students must know to participate in the market, and how to create teaching moments during lecture using the experiment.

8. Note that none of the students who participated in any of these courses were exposed to the experiment in previous classes.

9. It is interesting to note that students arrive at this outcome in the microeconomic principles class without ever having calculated the Nash equilibrium price of EC.

10. The EC market has not yet been used in a macroeconomic principles course.

11. Second-price sealed-bid auctions have the same theoretical outcome as live auctions but are faster, which saves class time. Additionally, this type of auction can easily be run as a Socrative question.

12. The prices are calculated as for i ∈ {S, R}, where ρ is the weighted price of EC at the time the stock is sold, E[Y] is expected output of the stock for each assignment, and is the total value of assignments that will be affected by the stock payouts. The results are P_S = 14.44 × 1.5 × 0.6 = 13 and P_R = 40 × 2.5 × 0.55 = 55.

13. Discounting from risk aversion is calculated by using the percent difference between the market price of the stock and the expected value of the stock payouts: . For example, the expected value of the safe stock was 13 Gronks, and the market price of the stock was 6 Gronks; this results in a discounting of 54 percent.

14. Of the positive comments made by students on the teaching evaluations, 52 percent mention the Gronks experiment specifically. Additionally, students are asked on the final homework assignment to describe their most and least favorite parts of the course (on this question, students receive the same number of points regardless of the answer they give). For the most recent course, for example, 67 percent of students reported that the Gronks experiment was the best part of the course. No students reported the experiment as being their least favorite part of the course.