## Public Goods Experiment Lecture
- I wanted to encourage other people to turn in red cards so I did so at first.
- Everyone would earn more money if people turned in red cards.
- If I kept both red cards I would only earn $8, but if everyone turned in both red cards, everyone would have earned $40. (This would be the type of answer one would get in a class with 20 people: 20 people x 2 red cards = 40 red cards turned in.)
Next, ask "These are all good reasons for turning in a red card, so will someone who did NOT turn in any red cards explain why they didn't do so?" (Sometimes no one wants to admit that they didn't turn in a red card, so if no one answers this question, you can rephrase this as a hypothetical question: "OK, will someone try to explain why someone MIGHT NOT want to turn in a red card?") Typical answers include: - Because I can make more money if I keep my red cards.
- I earned money from the cards everyone turned in AND money from cards that I kept, so I earned more by keeping my red cards.
At this point, it's helpful to summarize the discussion so far: If we're
thinking of the group, everyone can do better by turning in their red cards; but
each individual can earn more money by keeping their red cards and still earning
money from the red cards others turn in. - Earnings for each person if no one contributes to the public good. Answer: Money is only earned from cards kept, since nothing is turned in. So earnings are $4 x 2 red cards kept = $8.
- Earnings for each person if everyone turns in both red cards (no cards are kept by anyone). Answer (assume for this example there are 30 people in the class): Money is only earned from cards turned in, since none are kept. Since each person has 2 cards, 30 x 2 = 60 cards are turned in, which earn $1 each to every person. So each person earns 60 x $1 = $60.
- Earnings for a person if he or she keeps both red cards but everyone else turns in both red cards. Answer (assume for this example there are 30 people in the class). In this case, the person earns $4 x 2 = $8 for the two red cards kept. If the other 29 people turn in both red cards, there are 29x2 = 58 red cards turned in. So everyone earns 58 x $1 = $58 from red cards turned in. So the person who keeps both red cards earns $8 + $58 = $66 (and the others in the class only earn $58).
When students see these numbers they have a concrete example of why everyone
is better off if all turn in their red cards, but also why an individual has an
incentive to keep both red cards. ## Additional Suggestions for Upper-Level CoursesThe lecture material provided above is most suitable for an introductory
level course. If you are teaching upper-level courses (for example, intermediate
micro, public finance, or game-theory) you can supplement it with additional
material outlined below. Typically during the experiment-discussion period, people suggest trigger-strategies (without using this terminology). In almost all discussion periods, one or more students suggest that everyone turn in both red cards, but that if it is apparent (from the number turned in) that someone didn't that no one will turn in any red cards after this. Not all groups come to an agreement to try this strategy, but many do; in almost all cases one or more people do not turn in both red cards and the strategy fails. In fact, it is often the case that the person who suggested the trigger strategy is one of the people who does not turn in both red cards. |