The Bubble Game: A classroom experiment

Moinas, Sophie and Pouget, Sébastien (2016) The Bubble Game: A classroom experiment. Southern Economic Journal, 82 (4). pp. 1402-1412.

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Official URL: http://tse-fr.eu/pub/29626

Abstract

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.

Item Type: Article
Language: English
Date: April 2016
Refereed: Yes
Uncontrolled Keywords: financial markets, speculation, bubbles
JEL codes: A20 - General
D7 - Analysis of Collective Decision-Making
G1 - General Financial Markets
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Site: UT1
Date Deposited: 21 Sep 2015 13:08
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29626
URI: http://publications.ut-capitole.fr/id/eprint/18473

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