Middle Schoolers Intuitively Grasp Economics

Planet Money’s Dec. 25 podcast was another episode that was too good not to blog. They perform a classroom experiment related to gift-giving: randomly distributing ten different treats to a classroom of seventh-graders. Each student received one snack, which ranged in desirability from raisins and Fig Newtons to Three Musketeers and Sour Patch Kids.

Upon initially receiving their gifts, the kids gave an estimate of how much they liked what they received on a scale from 1 to 10. The total utility of the class at this stage of the experiment was 50. It took about 11.8 seconds for one of the middle schoolers to suggest that they could all be better off by trading. After one minute of swapping, the class’s utility went up to 82.

Economists are used to this sort of thing, but take a minute to appreciate how significant this is. The students’ assessment of how well off they were went up 60 percent in only 60 seconds. That’s without the addition of any other resources except time, and a free market. Without any more “stuff,” they still achieved more happiness.

This reminded me of two economics lessons related to trade. The first reminder was of R.A. Radford’s classic article, “The Economic Organization of a P.O.W. Camp.” Radford discusses how soldiers would trade items from their Red Cross packets (gifts, of a sort) to achieve greater total utility. There was so much utility left on the table in the initial allocation that a middleman–a chaplain, if I recall correctly–was able to facilitate the trades and turn his own packet into two as a reward for his efforts. (See this podcast for a discussion of the paper.)

The second reminder was of a very similar classroom experiment. Marc Bellemare runs a trading game at the beginning of his microeconomics course. It has the same setup as above: a random initial allocation of goods (in this case, inexpensive toys and trinkets), pre-trade measure of aggregate utility, a short trading period (five minutes), and a post-trade utility increase. Last fall his students experienced similar gains to the middle schoolers discussed above:

When I ran the Trading Game last week, my class’ “aggregate welfare” went from 128 to about 180, if I recall correctly, and you could just see that it had become obvious to students that (in this context of well enforced property rights) trade not only left no one worse off, but it increased aggregate welfare.

One final, interesting aspect gets brought up in the Planet Money podcast but not resolved: several of the students seem rather displeased with what they get, even though it was a gift. They are certainly no worse off but it does seem odd to assign a value of 0 (i.e. no different than their pre-gift utility) after receiving something that they did not have to work for. The Planet Money hosts seem to think that the kids should be happier.

It seems to me that the kids are grasping another subtle economic concept–opportunity cost. Even though they had no candy initially and had done nothing to earn it, the experiment publicly gave everyone an opportunity for a gift and they could see what their fellow students received. The kids may have assigned some value to their expected gift (the average of those around them, say) before they received anything. If what they got was worth less to them than what they expected, they were disappointed because they had lost the opportunity for something better. (Keep in mind that at that stage of the experiment they did not know that trading would occur.) The takeaway from this last comment is that the experiment actually includes an additional treatment because participants can see what others receive, and that changes their expectations.

For a tongue-in-cheek discussion of how additional choices can reduce utility, see the video below:

33 thoughts on “Middle Schoolers Intuitively Grasp Economics

  1. Kids don’t usually have to work or do anything in particular to “earn” what they have, so a “gift” means something different to them than to adults. I’d be interested to see whether adults in a similar experiment would give a gift they don’t like a rating of 0 as well.

    • They would, I think. Watch any game show when a person walks off stage with $500 more than they had when they went up there, but they missed a chance to win $20,000. They’re $500 richer than they were and still unhappy.

  2. An interesting concept, yet I feel it is a risky lesson, and may wrongly enhance the notion that free-trade is actually beneficial to all parties when the reality of this is not so.

    • It also neglects the fact that regulation helps — when the kids are supervised such that they can’t just beat up the smaller, weaker kids with Snickers bars and take them. An unregulated free market is like giving the kids gifts and then walking out of the room so the bullies end up with all the best stuff.

  3. I just started a petition on the White House petitions site calling for a ‘one computer per student’ policy. Will you help me get people to sign it? I need 150 signatures to get on the main site. I am a middle school teacher looking to help change how our students experience school. http://wh.gov/EaC7

  4. Great effort, I like your post! My name is Carlos, if you ever want to know about “Surfski Paddling” I invite you to visit my blog, the season is about to start!!. Regards.

  5. Great post, Matt! I’m glad to have discovered the Planet Money podcast, thanks for sharing. Also, that video is absolutely hilarious. He’s significantly more engaging than Mankiw. :-)

    Congratulations on being Freshly Pressed!

  6. Great piece. I’m studying economic basic at the moment and you just gave me thought on how I can better understand the basic principles. I have been looking at it as work this gives it life. Thanks. Great writing.

  7. Pingback: Middle Schoolers Intuitively Grasp Economics « Chasinthenews's Blog

  8. It seems too me that generations growing up in difficult financial times tend to pick up better skills in economics. I have always lived in a poor family but with the addition of our nations financial state my wife and I have become careful in our spending. We also support our local businesses and farmers.

    • I agree with your post. My wife and I both grew up in poorer backgrounds, my wife even more so and that has made us both careful with our spending. It makes me happy knowing you also support local businesses and farmers. I do not like to give my money to the large corporations and I encourage those around me to support local. I have been to many towns where most of the small businesses have had to close down because a new Tesco or similar had just opened up just outside the town. It is a scary thought when there are no more small businesses left and just these large corporations as it is them along with the high rolling banks that pull the strings of the ‘puppets in power’. It sometimes brings to mind the a scene in the film ‘Idiocracy’ where the characters are in a very large superstore, isle number ‘x’ thousand :)

      • I love ‘Idiocracy’ I just mentioned that today. There is a huge list of reasons to support local. Most people do not know that you can sometimes get a better deal as well. In the summer we shop at our local Co-Op and the farmers market, we spend about $100 a week to feed four of us. This is also due to growing in our own garden (about a 4×5 space).

  9. Great post and that video is absolutely hilarious. I think most things, economic principles included, are simple enough to be understood by children. It requires sufficient repetition by experts that “it is more complicated than we think” in order to muddle our thinking enough that we need to trust the experts exclusively.

    • I agree, Matt. There is also an element of looking at the world as an outsider. Children tend to have fresh perspectives by their very nature. There is speculation that early modern economists like Adam Smith had traits that are now identified with individuals on the autism spectrum. Often common sense and taking an unbiased look can lead to clear insights, as you suggest.

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