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November 12, 2006
The Value of Internet Search
Elota Patton at UT, Austin, wrote TeachingMIS.com this week with the description of a class simulation experiment.
The simulation scenario is that the player has goods to sell (say a basket of fish). He or she is offered a price of the goods (driven by a uniformly distributed random variable between 0 and $200.) The player can take the offer, or ask for another bid from a different buyer.
The simulation has three phases: In phase 1, the cost of a new bid is $10; in phase 2, it is $2, and in phase 3, it is zero. For example, in phase 1, say a person is offered $90, he or she can take the $90 or pay $10 and get another bid. The person can accept the higher of bid one or two, minus $10, or ask for a third bid, again for $10. If a person plays 10 rounds in phase 1 and has a maximum bid of $150, that person's net gain is $150 - 10 * $10 or $50. In phase 2, the same situation would net $150 - 10* $2 or $130. In phase three, that same situation would net $150.
Elota had groups of four students take the simulation in class. She told the students that the $10 of phase 1 represents having a person physically meet with a potential buyer to determine the buyer's price. The $2 of phase 2 represents a person using a cell phone to obtain the buyer's price, and the free bid of phase 3 represents using Internet search to find the highest price.
Of 25 teams, phase 1 returns ranged from $41 to $176. Phase 2 returns ranged from $105 to $172. Phase 3 returns ranged from $166 to $199. Most were in the $190s, as you'd expect. The $166 was from a team that got tired or bored and quit after three rounds ...
Thus: The Internet levels the playing field!!!
The game was created by Charles Holt in the Dept of Economics at UVA. The idea for using it in the MIS class was suggested by Gautam Ray at UT, Austin, from a suggestion of James Wolf at Illinois State University.
Posted by DavidK at November 12, 2006 12:11 PM | Permalink