Recently, Ronald Heiner (1983) has proposed a theory of predictable behavior which has its roots in what Heiner labels a competence-difficulty gap (hereafter called a C-D gap). This gap is a measure of the spread between an economic agent's competence to make an optimizing decision and the difficulty of the decision problem. Heiner argues that as the C-D gap widens, the agent is increasingly likely to follow rule-governed behavior, and it is this rule-governed behavior that produces observed regularities in economic behavior. If there is no C-D gap, Heiner argues that rule-governed behavior would disappear and, along with it, the observed regularities. Instead, unpredictable behavior, characterized by constant perturbation, would replace predictable behavior. Furthermore, the dynamic properties of Heiner's theory are characterized, in his words, by sudden behavior. This behavior is described as a sudden reversal of previous behavior and a persistent movement in another direction or behavior of a different kind. One of the casual or intuitive examples Heiner offers for support of his theory is the switching between buying and selling strategies in financial markets, resulting in sudden movement in stock prices (p. 582). This paper explores this idea and argues that there is more than intuitive support for Heiner's speculation; that, in fact, the behavior of daily price changes in financial markets conforms better to the prediction of Heiner's theory than to standard efficient market theory predictions.

Economics is characterized by well-developed predictive theories of human behavior. A wide variety of empirical tests of models based on those theories have been developed, as well as extensive and reliable data bases to test the theories. Thus, one can experiment with and simulate economic behavior. For these reasons, the conventional lecture-discussion format may be the least effective way to teach economics. Rather, the most effective teaching method may be as a laboratory science. We report here on two efforts to adapt economic instruction to a laboratory format. The purpose of adapting the lecture-laboratory format to economics is to permit a more active learning environment in which students can be meaningfully engaged by the material, with other students, and with the instructor. We report on two recent efforts to convert economics to a true, experimental, laboratory social science. The first, beginning in 1988, is a demonstration project conducted at Denison University for majors in economics. The second, beginning in 1993, is a true experiment conducted at Washington State University for all students taking introductory microand macroeconomics. I. The Demonstration Project for Economics Majors at Denison University