A Classroom Investment Coordination Experiment

Denise Hazlett ()
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Denise Hazlett: Whitman College

International Review of Economic Education, 2007, vol. 6, issue 1, 63-76

Abstract: In this classroom experiment students represent firms that make investment decisions. They play a repeated game with each firm privately choosing its level of investment. Participating in the experiment helps students understand theories that posit coordination failure as the cause of economic fluctuations. Students see that when firms expect a recession, their resulting low levels of investment actually cause a recession. Likewise, when firms expect an expansion, their resulting high levels of investment cause an expansion. The experiment can be used in undergraduate principles or intermediate macroeconomics classes of 860 students. It does not require computers and takes approximately 50 minutes to run and discuss.

Date: 2007
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