Students / Subjects

# Small-Class Public Goods Experiment

This experiment is largely based upon "Classroom Games: Voluntary Provision of a Public Good" by Charles A. Holt and Susan K. Laury, Journal of Economic Perspectives 11(4), Fall 1997, pages 209-215.

## Overview

The professor distributes four cards to each student: two red cards (hearts and diamonds) and two black cards (clubs and spades). The professor comes to each student and collects two cards: two red cards, two black cards, or one of each. Red cards represent the student's endowment that may be kept or contributed to a group fund. Red cards kept generate earnings only to the person holding the card. Red cards turned in (contributed) generate earnings to everyone in the group. (Black cards generate no earnings and are used to keep decisions private; when a student turns in two cards others cannot tell whether the student is turning in two red cards, two black cards, or one of each.) After all cards have been turned in, the professor counts the number of red cards contributed and announces this total to the group. Cards are returned to the students so they can make another contribution decision. After several contribution rounds, the professor announces a change in the value of red cards kept. After several more contribution rounds, students are given the opportunity to engage in a non-binding communication period before the experiment continues. The topics that students discuss typically form the basis of the subsequent class discussion and lecture.

## Student Instructions

(PDF file of instructions for printing)

(These instructions are written assuming that the teacher reads them to students in class, but can easily be modified for reading outside of class prior to the lecture period. They can also be given in writing to students, but many professors simply read them to the students and highlight the key rules on the board. In this case, the students can create their own record sheet on their own paper. Cards can be handed out while instructions are being read.)

This is a simple card game. Each of you will be given 4 cards; two of these cards are red (hearts or diamonds) and two of these cards are black (clubs or spades). All of your cards will be the same number. The exercise will consist of a number of rounds (you have 15 rounds listed on your record sheet - we will probably complete fewer than 15 rounds). When a round begins I will come to each of you in order, and you will play TWO of your four cards by placing these two cards face down on top of the stack in my hand. Your earnings in dollars are determined by what you do with your red cards.

In the first several rounds: you will earn \$4 for each red card that you keep and \$0 for each black card that you keep. Red cards that are placed on the stack will affect everyone's earnings in the following manner. I will count up the number of red cards, and everyone will earn this number of dollars. Black cards placed on the stack have no effect on the count.

When the cards are counted, I will not reveal who made which decisions, but I will return your cards to you at the end of the round (by returning to each of you in reverse order and giving you the top two cards from the stack in my hand). To summarize, your earnings for the period will be calculated as:

Earnings = \$4 x (number of red cards you kept) + \$1 x (total number of red cards I collect)

After several rounds, I will announce a change in the earnings for each red card you keep. Red cards placed on the stack will always earn \$1 for each person. Use the space below to record your decisions, your (hypothetical) earnings, and your cumulative earnings.

## Additional Instructions for the Professor

1. You should conduct several rounds with the earnings specified in the students' instructions (\$4 for each red-card kept and \$1 for each red-card turned in), until the number of red-cards contributed starts to decline. Typically there is a marked decrease in contributions after three or four rounds. After this, change the value of a red-card kept to \$2, while keeping the value of a red-card turned in fixed at \$1. This does not change the Nash equilibrium, but because the opportunity cost of keeping a card declines, one typically observes an increase in contributions as a result of this change. This increase is particularly dramatic since it occurs after contributions had been declining for two or three rounds in the first treatment. After several rounds with this payment structure, announce that you will give students a chance to talk for several minutes. They can talk about anything they like, but tell them that you will not enforce any agreements that they make and that they will not be given another chance to talk with one another before the end of the experiment. Give students up to 5 minutes for discussion, then conduct several more rounds.

2. If you are running short of time, reduce the number of rounds conducted under the second treatment (\$2 for each red card kept) and conduct only one or two rounds after the discussion period. It's best not to skip the discussion period since this is when many students start to figure out the conflict between what is best for the individual and what is best for the group. However, we suggest that you not allow students to talk to one another at any other time during the experiment.

3. Each student should start a round with two red cards and two black cards, therefore it is essential that you return cards you give a student the same two cards that he or she played. An easy way to do this is to go back to each student in the reverse order that you used to collect the cards, then give the student the top two cards from the stack in your hand. This will work as long as (a) each student played two cards as instructed, and (b) you keep the cards in order when you count the number of red cards turned in. Since students are originally given four cards with the same number (i.e., 4 of hearts, diamonds, clubs, and spades), if you make a mistake in returning cards it can be quickly corrected.

4. Students typically need some help in filling out their record sheet during the first round or two, so you should lead them through the process. Remind them that they earned \$4 for each red card kept; so the column labeled "earnings for cards kept" will be \$0 if they kept no red cards (they turned in both), \$4 if they kept 1 red card, and \$8 if they kept both red cards. Then announce the earnings that EVERYONE will receive from the red cards turned in (for example, if 18 red cards were turned in, announce that everyone should write down \$18 in the column labeled "\$1 x (total # of red cards in stack)"). Be sure to remind them that each person will receive this amount, even those who turned in no red cards. Then tell them to fill in their total earnings in the period: earnings from cards kept + earnings from cards in the stack.

5. After each round, you should write on the board the total number of red cards that were turned in. Be sure to indicate the value of the red card kept for each decision, since you will refer to this and the number of cards contributed during the class discussion.