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The Value of Fiat Money with an Outside Bank: An Experimental Game

Author

Listed:
  • Juergen Huber
  • Martin Shubik
  • Shyam Sunder

Abstract

Why people accept intrinsically worthless fiat money in exchange for real goods and services has been a longstanding question. There are many competing sufficient explanations that may confound each other in practice but can be individually tested in isolation experimentally. In this paper we examine a sufficient explanation of the value of fiat money through the existence of a debt instrument which allows consumption to be moved earlier in time. We present experimental evidence that the theoretical predictions about the behavior of such economies work reasonably well in a laboratory setting. The import of this finding for the theory of money is to show that the presence of a societal bank and default laws provide sufficient structure to support the use of fiat money, although many other institutions such as taxation provide alternatives.
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Suggested Citation

  • Juergen Huber & Martin Shubik & Shyam Sunder, 2009. "The Value of Fiat Money with an Outside Bank: An Experimental Game," Levine's Working Paper Archive 814577000000000145, David K. Levine.
    • Handle: RePEc:cla:levarc:814577000000000145
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    File URL: http://www.dklevine.com/archive/refs4814577000000000145.pdf
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    Cited by:

    1. Juergen Huber & Martin Shubik & Shyam Sunder, 2009. "Default Penalty as a Disciplinary and Selection Mechanism in Presence of Multiple Equilibria," Cowles Foundation Discussion Papers 1730, Cowles Foundation for Research in Economics, Yale University.
    2. Martin Angerer & Juergen Huber & Martin Shubik & Shyam Sunder, 2010. "An economy with personal currency: theory and experimental evidence," Annals of Finance, Springer, vol. 6(4), pages 475-509, October.
    3. Huber, Juergen & Shubik, Martin & Sunder, Shyam, 2010. "Three minimal market institutions with human and algorithmic agents: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 70(2), pages 403-424, November.
    4. Martin Angerer & Juergen Huber & Martin Shubik & Shyam Sunder, 2007. "An Economy with Personal Currency: Theory and Evidence," Yale School of Management Working Papers amz2448, Yale School of Management, revised 01 Jan 2009.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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