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The bubble game: A classroom experiment

Sophie Moinas and Sébastien Pouget

Southern Economic Journal, 2016, vol. 82, issue 4, 1402-1412

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.

JEL-codes: A20 G1 D7 (search for similar items in EconPapers)
Date: 2016
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http://dx.doi.org/10.1002/soej.12119

Related works:
Working Paper: The bubble game: A classroom experiment (2016)
Working Paper: The Bubble Game: A classroom experiment (2014)
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