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Playing with money

Douglas Davis, Oleg Korenok, Peter Norman, Bruno Sultanum and Randall Wright

Journal of Economic Behavior & Organization, 2022, vol. 200, issue C, 1221-1239

Abstract: Experimental work in monetary economics is usually based on theory that incorporates an infinite horizon. Yet, hard constraints on laboratory sessions lead to finite times when the game must (with probability 1) end, and then simple backward induction implies monetary equilibria cannot exist. Hence, these experiments cannot evaluate subjects’ ability to settle on the use of money as a medium of exchange, that ameliorates trading frictions, as an equilibrium outcome. To address this, we present some finite-horizon games where monetary exchange is an equilibrium outcome, and report some experimental results using these games.

Keywords: Monetary theory; Infinite horizon; Experimental economics (search for similar items in EconPapers)
Date: 2022
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Working Paper: Playing with Money (2019) Downloads
Working Paper: Playing with Money (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:200:y:2022:i:c:p:1221-1239

DOI: 10.1016/j.jebo.2020.06.031

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