Crude simulations

Thursday, June 30th, 2005

The Chronicle of Higher Education reports on several learning and teaching techniques at various institutions. In Stage Simulations, for example, Jeff Young goes to the Wharton School and finds students facing a simulation that focuses on resource management

Lee Moss and Dominic Meoli sit in a small meeting room here nervously staring at a computer screen. They are master’s students at the University of Pennsylvania’s Wharton School, but for the moment they are playing the role of representatives from a small Middle Eastern country deciding how many barrels of oil their nation should produce.

. . .

When the simulation began at the start of the three-hour class session, and each group of students retired to a different computer-equipped meeting room, Mr. Moss and Mr. Meoli quickly determined that if all the countries produced 38.3 barrels of oil, they would maximize total profits, and each country would make the same amount. And the students knew that if the countries collectively produced too much oil, the market would flood and they would all lose money. So during each turn the teams must decide whether or not to produce a few extra barrels and risk sparking a production arms race — a classic “prisoner’s dilemma.”

For the first few rounds, things go smoothly. The Web-based computer system controlling the simulation shows exactly what each country produces, so if one nation strays from the optimal price, others can see, and can scold them via electronic messages.

But starting with Round 5, the computer system no longer lets the teams communicate. And the system no longer shows details of what each country produces, but instead displays only the total combined production of the teams.

That’s when things get interesting.

One of the countries decides to increase its output to snag some extra profits. In the next round, Mr. Moss and Mr. Meoli decide to retaliate by drastically raising their own output — to 55 barrels — to try to stage a comeback. “We went thermonuclear,” jokes Mr. Moss of their production spike. Unbeknownst to them, the other teams also raise output.

World oil prices promptly collapse.

The simulation and ideas behind it were the result of collaboration between the professor and programmers at the college, which, for me, is the important part of all this. What did the simulation reinforce in the students? To deal still means that you have to get out, meet people face to face, and negociate. Very Good.

Thanks to Christina Gowtowka for the send.


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