A simulation game is "a

game A game is a structured type of play usually undertaken for entertainment or fun, and sometimes used as an educational tool. Many games are also considered to be work (such as professional players of spectator sports or video games) or art ...

that contains a mixture of

skill A skill is the learned or innate ability to act with determined results with good execution often within a given amount of time, energy, or both. Skills can often be divided into domain-general and domain-specific skills. Some examples of gen ...

, chance, and

strategy Strategy (from Greek στρατηγία ''stratēgia'', "troop leadership; office of general, command, generalship") is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the " a ...

to simulate an aspect of reality, such as a

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

". Similarly, Finnish author Virpi Ruohomäki states that "a simulation game combines the features of a game (competition, cooperation, rules, participants, roles) with those of a simulation (incorporation of critical features of reality). A game is a simulation game if its rules refer to an empirical model of reality". A properly built simulation game used to teach or learn

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

would closely follow the assumptions and rules of the theoretical models within this discipline. __TOC__

In economics education

Economics education Economics education or economic education is a field within economics that focuses on two main themes: *The current state of, and efforts to improve, the economics curriculum, materials and pedagogical techniques used to teach economics at all e ...

studies recommend the adoption of more active and collaborative learning methodologies (Greenlaw, 1999). Simkins (1999) stated "… ''teaching practices, which rely heavily on the lecture format, are not doing enough to develop students' cognitive learning skills, attract good students to economics, and motivate them to continue coursework in the discipline''" (p. 278). This is consistent with the results of a survey published in the American Economic Review by Allgood (2004) that shows that students "rarely take economics as a free elective – especially beyond principles" (p.5). More is needed to be done in the classroom to excite students about economics education. Simulations supplement the standard lecture. Both computerized and non-computer based simulation and games show significant levels of growth in education (see Lean, Moizer, Towler, and Abbey, 2006; Dobbins, Boehlje, Erickson and Taylor, 1995; Gentry, 1990;).

Example in monopolistic competition

Through a simulation game, students may participate directly in a market by managing a simulated firm and making decisions on price and production to maximize profits. An excellent review of the use of a successful market simulation is given by Motahar (1994) in the Journal of Economics Education. A monopolistic competition simulation game can be used as an example in the standard economics classroom or for

experimental economics Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic expe ...

. Economic experiments using monopolistic competition simulations can create real-world incentives that may be used in the teaching and learning of economics to help students better understand why markets and other exchange systems work the way they do. An explanation of experimental economics is given by Roth (1995). Assumptions of monopolistic competition A simulation game in

monopolistic competition Monopolistic competition is a type of imperfect competition such that there are many producers competing against each other but selling products that are differentiated from one another (e.g., branding, quality) and hence not perfect substi ...

needs to incorporate the standard theoretical assumptions of this market structure, including: * Many buyers and sellers * Easy entry and exit * Some degree of

product differentiation In economics and marketing, product differentiation (or simply differentiation) is the process of distinguishing a product or service from others to make it more attractive to a particular target market. This involves differentiating it from c ...

* Zero economic profits in the long-run In a simulation of monopolistic competition, each firm must be small in size, and should not be able to influence the direction of the overall market. Yet each firm has some control over price owing to product differentiation. To be consistent with economic theory, the simulation model should allow entry of new firms to occur as long as profits are greater than normal, and economic profits exist. The entry of new firms will decrease the market price, and eventually cause economic profits to return to zero (see Baye, 2009). Controllable decisions in monopolistic competition To simulate monopolistic competition, the controllable firm decisions of the participants (students) must include, at a minimum, those specified in the standard theoretical model, including (see Baye, 2009): * Firm price * Advertising * Firm production * Plant Size Simulation game experience From an educational point of view, students will have an "opportunity" to learn by their own observations and experience through participation in a simulation game (see Schmidt, 2003). Consistent with the theoretical model of monopolistic competition (see Baye, 2009), student participants would observe and experience that their pricing decisions are controlled by the market. They would "experience" that in the simulation they would have to lower their firm's price to be competitive as new firms entered the market. In the long-run, they would see the impact of changing plant size. They would observe that the successful firms would take advantage of economies of scale, but would also be careful not to incur

diseconomies of scale In microeconomics, diseconomies of scale are the cost disadvantages that economic actors accrue due to an increase in organizational size or in output, resulting in production of Product (business), goods and Service (economics), services at incre ...

in the long-run. Students would experience that economic profits cannot be maintained in the long-run. They would see, first hand, that their accounting profits will inevitably decline and move closer to normal profits. This experience provides students an opportunity to learn (as a supplement to the lecture and readings) the economic messages of monopolistic competition.

Examples in Macroeconomics

A simple baseline economy model has been proposed by M. Lengnick (2013). This model consists of two types of economic actors only: households playing the roles of workers/employees and consumers, and firms playing the roles of employers and producers/suppliers. All firms produce and sell the same abstract consumption good that is bought (and consumed) by households. The model has originally been implemented in Java, but is also available as a web-based simulation. In 2018, Harvard Business Publishing published "Macroeconomics Simulation: Econland". This 30-minute simulation brings economic policy-making to life by allowing students to make monetary and

fiscal policy In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...

decisions and consider their impact on the economy of a fictional country. Students manage the economy through a 7-year

business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...

in an effort to maximize the approval rating from their population. Exploring the trade-offs of economic policy decision-making and the effects of the global economic environment on a country, students consolidate their understanding of core macroeconomic concepts, including GDP,

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

, and

budget deficit Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit, the opposite of budget surplus. The term may be applied to the budg ...

. At a deeper level, students develop critical thinking skills and learn about economic modeling and system dynamics. The simulation won a Silver Medal at the International Serious Play Awards.

References

Additional References

* Allgood, S., Bosshardt, W., Van der Klaauw, W., and Watts, M. (2004). What Students Remember and Say about College Economics Years Later. American Economic Review, 94(2), 259-65. * Dobbins, C. L., Boehlje, M., Erickson, S., and Taylor, R. (1995). Using Games to Teach Farm and

Agribusiness Agribusiness is the industry, enterprises, and the field of study of value chains in agriculture and in the bio-economy, in which case it is also called bio-business or bio-enterprise. The primary goal of agribusiness is to maximize profit ...

Management, Review of Agricultural Economics, 17(3), 247-255. * Fritzche, D., and Cotter, R. (1990). Guidelines for Administering Business Games, in Guide to Business Gaming and Experiential Learning, edited by Gentry, J., ABSEL, Nichols/GP Publishing, East Brunswick, 74-89. * Gentry, J., ed., (1990), Guide to Business Gaming and Experiential Learning, ABSEL, Nichols/GP Publishing, East Brunswick. * Greenlaw, S.A. (1999). Using groupware to enhance teaching and learning in undergraduate economics, Journal of Economic Education, 30(winter), 33-42. * Lean, J., Moizer, M., Towler, C. A. (2006). Active Learning in Higher Education, Journal of Simulation and games, 7(3), 227-242. * McHaney, R., White, D., Heilman, G. E. (2002). Simulation Project Success and Failure: Survey Findings, Simulation & Gaming, 33(1), 49-66. * Mills, B.J. and Cottell, P.G. (1998), Cooperative learning for higher education faculty, Phoenix, Ariz.: Oryx Press * Simkins, S.P. (1999), Promoting active-student learning using the World Wide Web in economics courses, Journal of Economic Education, 30(Summer), 278-91.

External links