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The bubble game: A classroom experiment
Author(s) -
Moinas Sophie,
Pouget Sébastien
Publication year - 2016
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12119
Subject(s) - asset (computer security) , economics , mathematical economics , nash equilibrium , economic bubble , microeconomics , value (mathematics) , experimental economics , bubble , market game , simple (philosophy) , zero (linguistics) , monetary economics , computer science , mathematics , statistics , computer security , philosophy , linguistics , epistemology , parallel computing
We propose a simple classroom experiment on speculative bubbles: the Bubble Game. This game is useful to discuss about market efficiency and trading strategies in a financial economics course, and about behavioral aspects in a game theory course, at all levels. The Bubble Game can be played with any number of students, as long as this number is strictly greater than one. Students sequentially trade an asset which is publicly known to have a fundamental value of zero. If there is no cap on asset prices, speculative bubbles can arise at the Nash equilibrium because no trader is ever sure to be last in the market sequence. Otherwise, the Nash equilibrium involves no trade. Bubbles usually occur with or without a cap on prices. Traders who are less likely to be last and have less steps of reasoning to perform to reach equilibrium are in general more likely to speculate.