Finance Games: Asset Pricing & Rational Expectations | MobLab
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Take Finance Education To The Next Level With MobLab

Christopher Elce
"An investment in knowledge pays the best interest." — Benjamin Franklin

In today’s world, markets and their behaviors exhibit traits that students (and even the pros!) may sometimes find mysterious. Our finance games can drop clues and provide illumination toward knowledge discovery. Check out our recommendations for using MobLab games for teaching finance. In this post, we’ll introduce you to the Asset Market (Bubbles & Crashes) game.

So, how easy is it to get a speculative asset bubble? All too easy, as history has demonstrated many times. We’re human and are never consistently rational either individually or in groups. With every speculative asset bubble comes volatility, especially if an asset class is new to a given market. Cryptocurrencies, as a contemporary example, have demonstrated massive volatility.

In the Asset Market finance game, students are given a budget to acquire a dividend-paying asset, whose price is determined in a competitive market. Even though the stream of dividends from the asset is known, it is common to get speculative asset bubbles with transaction prices above the asset's maximal payout.

Demo of Asset Market (Bubbles & Crashes) game.

When the Asset Market finance game is finished, results are automatically generated for each group of players (i.e., each market) and displayed immediately. Game results, shown in the video below, make it easy to identify a speculative bubble. Each transaction's price is depicted in the graph, as are two additional benchmarks:
  • The blue line shows the asset's expected value if held to the final round. Absent speculative demand, this would be the price with risk neutral investors.
  • The red line is the asset's payout if the higher dividend is realized each period.
While transactions between the two lines can be explained by risk-loving preferences, prices above the asset's maximal payout can only be justified by a belief of later resale at a price above the asset's maximal payout (i.e., speculative demand).

Sample Asset Market game results. Instructors can easily download the results as graphs by clicking the “Save As Image” button at the top right.

If you already have an account, you can check out all of our games in our game library. Don't have an account? Create one! It's commitment-free and gives you access to all MobLab economics games and materials. Here is the link to sign up or if you prefer to meet one-on-one, schedule a time with us here.