Encouraging Scientific Inquiry Through Experimental Lab Reports: An Example of Conducting Experimental Auctions

to Demonstrate WTP/WTA Disparity

Hillary M. Sackett, Ph.D.Westfield State University

Prepared for The 9th Annual Economics Teaching ConferenceOctober 24 – 25 Austin, TX

Outline• Background

– Course Design– Classroom Experiments

• Two-week Module Simulation– Class 1: Lecture– Class 2: Problem Solving– Class 3: Classroom Experiment– Class 4: Discussion

• Assessment– Experimental Lab Reports– Rubric– Student Evaluations

Course Design

• ECON 320: Environmental Economics• Objectives: Students will be able to…

1) Communicate, verbally and in writing, how social science knowledge is established and how this knowledge changes over time.

2) Evaluate evidence and apply it to solving problems using the scientific method.

3) Analyze data and construct theoretical and mathematical models of observed economics behavior.

4) Engage in interdisciplinary discussion of past, present, and future economic policies and their local and global impact.

Course Design• Module Composition– Class 1: Lecture– Class 2: Problem Solving– Class 3: Classroom Experiment– Class 4: Discussion

• Course Evaluation– Experimental Lab Reports (5)= 30%– Exam 1 = 20%– Exam 2 = 20%– Problem Sets (5) = 20%– Film Reviews (2) = 10%

Course Design

• Thematic two-week modules:– Externalities & Public Goods– Efficiency and Open Access– Valuing Environmental Benefits and Costs– Monitoring and Enforcement– Incentive-based Policy and Pollution Trading

Classroom Experiments

“Learning is too often passive in economics, with a vast difference between abstract (yet

powerful) theoretical models and the busy nature of everyday economic activity”

- Charles Holt

Classroom experiments enhance the effectiveness of the Socratic method, by exposing students directly to

the economic environments they study.

Class 1: Lecture• Efficiency Standard

– Maximize Net Benefits• Two categories of Benefits

– Market Benefits– Non-market Benefits = Use + Option + Existence Value

• Consumer Surplus– Welfare Analysis– WTP for Improvement vs. WTA for Compensation

• WTP/WTA Disparity– Prospect Theory– Substitution– WTA >WTP – standard practice to use WTP

• Non-market Valuation Methods– Contingent Valuation– Travel Cost– Hedonic Analysis– Experimental Auctions

Class 2: Problem Solving*

• In-class activity• Group Work• Professor available for questions

*Handout # 1

Class 3: Classroom Experiment: Handouts

• Handout # 2: – Participation Agreement– Auction Instructions– How Does the Auction Work?– Discussion Questions

• Handout # 3:– Bid Sheets

Let the Auction Begin!

Product 1: Walmart Great Value Maple Syrup

Product 2: Natural Homegrown Michigan Maple Syrup

Classroom Experiment: Step-by-Step

• Step 1: Choose two products that are quality differentiated– Students are like puppies – very food motivated!

• Step 2: Run WTP auctions for each product• Step 3: Endow students with “superior”

product (Do not tell them ahead of time!)• Step 4: Run WTA auctions for product

Classroom Experiment:Design Elements

• Multiple Rounds– More than one round for each auction allows for learning

• Bid Explanation– Richer data on motivation for bids

• Posted Bids– Feedback encourages bids to converge

• Information Treatment– Break class into groups to test effect of information

• Total WTP vs. WTP for upgrade– Endow students with one product and have them bid WTP to

upgrade or WTA to downgrade

Class 4: Discussion

• WTP Natural – WTP Conventional– Price Premium on Non-market Benefits

• WTA > WTP for same product– Why?

• Effect of experimental design elements• How could experiment have been designed

differently?• Why is experimental design so important?

Experimental Lab Report*

• Abstract (Cover Page)• Background• Experimental Methods• Results (Graphs and Figures)• Discussion• References

*Handout # 4: Lab Report Template

Rubric*

*Handout # 5:Lab Report Rubric

Student Evaluations

Student Evaluations

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