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The Bubble Game: A classroom experiment

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  • Moinas, Sophie
  • Pouget, Sébastien

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.

Suggested Citation

  • Moinas, Sophie & Pouget, Sébastien, 2014. "The Bubble Game: A classroom experiment," TSE Working Papers 14-508, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:28354
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    References listed on IDEAS

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    Cited by:

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    2. Jiasheng Zhu & Luyao Zhang, 2023. "Educational Game on Cryptocurrency Investment: Using Microeconomic Decision Making to Understand Macroeconomics Principles," Papers 2301.10541, arXiv.org, revised Feb 2023.
    3. Huber, Christoph, 2019. "oTree: The bubble game," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 3-6.
    4. Cerruti, Gianluca & Lombardini, Simone, 2022. "Financial bubbles as a recursive process lead by short-term strategies," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 555-568.
    5. Kyle Hampton & Paul Johnson, 2021. "Kaivik: A Free Online Asset Market Cellphone Interface Experiment with Financial Bubbles," Working Papers 2021-04, University of Alaska Anchorage, Department of Economics.

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    More about this item

    Keywords

    financial markets; speculation; bubbles;
    All these keywords.

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • G1 - Financial Economics - - General Financial Markets
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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