Economics of Information

Netusil, Noelwah R. and Michael Haupert. " The Economics of Information: A Classroom Experiment." The Journal of Economic Education. 26 (Fall 1995) 357-363.

This experiment deals with consumers’ decisions regarding a product that they are not completely informed about. In this experiment, students rank the quality of a product by their own experiences with the product and the signals that they perceive. The experiment tests the determination of quality with four different pumpkin pies bought from four separate places. The students do not know where the pies were bought. Then the instructor divides the class into seven groups where they all rank each of the pies. Each group should have a separate set of information regarding the pies that would help them as they ranked the pies. One group is only allowed to taste the pies and then rank them. Another group can look at the name and packaging without tasting them. A third group only knows the cost of the pies and cannot even see the pies or the packaging. The fourth group has the information used to advertise the pies but they are not allowed to know the names of the pies. Group Five can only taste the pies, and they write about each taste test to explain to Group Six which pie was the best. From this, Group Six must then judge each pie. The last group is provided with all of the information, but they are not permitted to taste the pies. When this is completed and there is a group consensus regarding the number rankings of the pies, then the groups who do not know the prices of the pies should explain their reasoning for the ranking of the pies. After this the rankings are revealed and analyzed. The basis of this experiment is used to stimulate the students to see and understand the effects of signals regarding the quality of products. This then stirs a discussion dealing with such topics as price, warranty, name, advertising, and other such topics and the ways they are used to define or suggest quality.