A Synergistic Approach to Simulations in Economics

Economists are not particularly successful in teaching policy-related issues with simulations as substitutes for traditional lecture or discussion formats. Such a lack of success may be attributed to simulations too narrowly designed to represent adequately the total decision-making environment and to achieve specific educational objectives. For example, there are at least three basic aspects to the making of monetary policy by the Federal Reserve Board of Governors or to the mapping of fiscal policy by the President's Economic Policy Board. First, each member of these groups must digest a surfeit of economic information. New data are continuously released while old data are revised. Secondly, each member must analyze both types of information whether within his own cognitive framework or that of persuasive staff economists who buttress their arguments with reams of computer output. Finally, the extent to which the information is digested and analyzed depends on personal and institutional limitations as does the range of suggestible policy options. The three aspects of the policy-making environment can be summed up as the facts of the situation, the theoretical perspective and analysis, and the personal and institutional roles of particular actors. Case studies can accurately present the facts of a situation while role-playing can provide helpful insights to personal and institutional constraints in operation. Moreover, there are several computer models of the economy allowing students to trace the impact of numerous policy changes. Although these techniques may adequately represent one aspect of the policy-making process, they individually fail to represent the overall policy-making environment. Thus specialization in simulation technique inherently misrepresents policy-making and invalidates some simulations, diminishing their teaching effectiveness. Some simulations are ineffective because their educational objectives are poorly defined and ignore the cumulative nature of the learning process. An economic interpretation of Bloom's taxonomy of educational objectives indicates that students progress from a very low level of understanding the facts of a situation to understanding the basic relationships. Next, these relationships are employed to build models with complex interrelationships. These models are, in turn, used to demonstrate the result of parametric changes. At the highest level of understanding, students are able to weigh relative merits of alternative policies and models and to make informed judgments and recommendations. Simulations that are not designed to build upon this learning sequence must necessarily be less effective. In order to represent adequately the three key aspects of the policy-making process and to teach effectively the issues involved, we propose the synergistic approach to the use of simulations in teaching economic policy. This approach requires only that the three basic techniques of case study, role-playing and computer simulation be simultaneously employed in policy-oriented simulations. The case study technique provides the facts of the situation and the first level of economic understanding; the role-playing technique serves as a means of incorporating operative constraints and as a method of theorizing; the computer simulation technique gives students an opportunity to analyze facts and basic relationships within a comprehensive model; and the combination of all techniques into a synergistic whole gives students a sense of the problems and pressures of policy-making. As a result, students have a solid understanding of the process needed to make policy judgments. The synergistic approach is successfully employed in the Federal Open Market Committee simulation in advanced undergraduate courses in Money and Banking. Details of the simulation