Economics: Information Failure Simulator Bundle

Explore the Economics of Information Failure with this interactive bundle: the Principal-Agent Simulator reveals how incentives and contracts shape behaviour under hidden actions, while the Market for Lemons Simulator demonstrates how hidden information can lead to adverse selection and market breakdown. Perfect for bringing asymmetric information theory to life in the classroom.

Both HTML simulators are accompanied by a supporting PDF document, designed to help teachers integrate the resource effectively into the classroom with ideas for use, key discussion questions, and reflection prompts.

Principal-Agent Problem Simulator:

This interactive simulation guides students through the classic Principal-Agent Problem in economics. Students take on the role of a firm owner (the “principal”) who must hire and manage a functional department head (the “agent”) — choosing from Finance, Marketing, HR, or Operations.

Students using this simulator will:

Understand the conflict of interests between owners and managers.

Explore the incentive structures (e.g. bonuses, monitoring, autonomy) used to reduce moral hazard.

Appreciate the challenges of contract design in aligning goals.

See how economic theory is applied in HR strategy, corporate governance, and business ethics.

Develop analytical reasoning by testing and observing outcomes based on their strategic choices.

Market for Lemons Simulator:

This engaging simulation is based on George Akerlof’s famous theory of asymmetric information in markets — “The Market for Lemons.” Students act as used car buyers who must decide what price to offer, without knowing the true quality of the vehicles.

Students using this simulator will:

Understand how asymmetric information leads to market failure (e.g. only low-quality goods being traded).

Grasp concepts such as adverse selection, reservation price, and market efficiency.

Explore the difference between perfect and imperfect markets.

Develop economic reasoning on how information asymmetries distort incentives and outcomes.

See how buyer behaviour affects which sellers stay in the market — reinforcing the idea of “lemons” crowding out “peaches”.

The Insurance Game Simulator

The HTML game you’ve built offers a distinctive blend of interactivity, theory, and applied experimentation that produces rich learning outcomes. Unlike static teaching resources, the Insurance Market Simulator allows learners to directly engage with the mechanics of adverse selection and moral hazard, seeing in real time how insurers and policyholders respond to different incentives and market condition

The primary benefit of this game lies in its ability to make abstract microeconomic concepts tangible. Students can manipulate premiums, deductibles, coverage levels, and co-payments, then immediately observe the consequences for participation rates, insurer profit, market stability, and efficiency loss. This process bridges the gap between theoretical knowledge and applied understanding, reinforcing how hidden information and hidden actions create inefficiencies. The act of experimenting builds not only comprehension but also critical thinking, as learners must hypothesize, test, and evaluate outcomes.

In terms of learning outcomes, the simulator fosters a deeper grasp of asymmetric information problems. By experimenting with adverse selection, learners see why low-risk individuals might exit the market and how “death spirals” occur. When exploring moral hazard, they gain insight into the delicate balance between providing insurance and maintaining incentives for careful behaviour. The game also introduces students to core frameworks, including expected utility, insurer profit functions, and equilibrium concepts, which helps to build transferable analytical skills that extend to wider economic contexts.

Importantly, the interactive format enhances motivation and engagement. Rather than passively reading about these topics, students are encouraged to explore, make mistakes, and discover solutions through trial and error. This experiential approach improves retention, as the outcomes are not abstract descriptions but personally observed results. The inclusion of explanatory text after each adjustment ensures reflection is guided, making the learning active but still structured.