Makes students think short videos 7 minute video

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Makes students think.Short Videos:7-minute video: Problem Solving with Economics3-minute video : Friedman v. Donohue on GreedThe first video is an edited lecture by Froeb, with sound, illustrating the idea of chapter 1 with theTVA barge example from chapter 24. The second is a great defense of capitalism by UncleMilton. Teaching NoteI open with a business problem, like the over-bidding in the introduction, the Kidder-Peabody anecdote,or any of the anecdotes in the concluding chapter “you be the consultant,” and then ask the students toassume that they are a consultant brought in to the company to figure out what is wrong. Play 20questions, and make them ask questions that have “yes” or “no” answers until they figure out what iswrong. Students will invariably use the rational actor paradigm to do this. Point this out to them. Tellthem that this class is trying to show them how to use this paradigm more formally.At the beginning of each of my lectures, I reinforce their problem solving skills by asking them to solve aspecific problem. The trick is to dribble out the information, bit by bit, to engage the students and keepthem guessing what the problem is. Note that some students will typically define the problem as the lack of a particular solution. When thishappens, use the opportunity to point out how this approach locks you into a particular solution. Showthem how not to do this. I then formally introduce the rational actor paradigm and show how it can be used to both identify whyproblems occur and what can be done to change behavior. I tell them that the key step in solvingproblems is to bring it down to an individual decision level. First, find out who made a bad decision.Under the rational actor paradigm there are only two reasons for making mistakes: not enoughinformation or bad incentives. Find out which it is. Bottom line is that problems can be identified byasking three questions:1. Who made the bad decision?2. Did they have enough information to make a good decision? 3. Did they have the incentive to make a good decision?5
I then tell them that incentives have two pieces: a performance evaluation metric and a way to rewardgood performance, or punish bad performance. The Brickley, Smith, and Zimmerman article is a goodreference for this. Various solutions to the problem will likewise center on:1. Changing decision rights (letting someone else make the decision);2. Changing information flows; or 3. Changing incentivesi. Performance evaluationii. Compensation linking performance to rewards.I tell them the “goal” is to align the incentives of employees with the goals of the organization. Aftergiving students this paradigm, I then ask them to fix the problem. Solicit suggestions, and ask otherstudents what they like or don’t like about the various proposed solutions. The message is that there areonly tradeoffs and no universal solutions, i.e., the answer to every question is “it depends.” The point of

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