Classroom Games: Speculation and Bubbles in an Asset Market
AbstractThis paper describes a classroom exercise in which students trade assets of uncertain value in a sequence of market periods. Assets pay one-dollar dividends at the end of each period, but once the dividend is paid there is fixed probability that the asset will be destroyed. Dividends and probabilities are chosen so that the fundamental value is constant over time. Speculative bubbles can be caused by divergent expectations about other traders' valuations of the asset. This exercise provides an interactive framework that facilitates discussions of discounting, rational expectations, and backward induction.
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Bibliographic InfoArticle provided by American Economic Association in its journal Journal of Economic Perspectives.
Volume (Year): 12 (1998)
Issue (Month): 1 (Winter)
Find related papers by JEL classification:
- A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Sonderforschungsbereich 504 Publications
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Working Papers in Economics
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- Stefan Palan, 2013. "A Review of Research into Smith, Suchanek and Williams Markets," Working Paper Series, Social and Economic Sciences 2013-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
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- Powell, O.R., 2010. "Essays on experimental bubble markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4219264, Tilburg University.
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