How To Play
The goal of each of your institutions will be to make money through buying/selling of an asset (computers) to each other. The true value of each of these computers is the total weight of all of the players in the game combined. This total is known only by us. You all have been given the information of your group’s total weight in order for you to have some sense about the true market value of these computers, but not total knowledge.
Once the experiment begins, each of your teams will attempt to figure out what the true value is without any communication or help from the other teams. Once you believe to have a true value, you will place both a bid (buy) and ask (sell) price bracketed around what you believe the true value to be. For example, if you believe the true value to be 1000 your bid price would be 990 and your ask price would be 1010 (since you want to buy under the true value and sell over the true value.
These numbers will then all be written on the board for all to see and teams will have the opportunity to make ONE trade in which they attempt to buy under what they believe the true value in the market to be or sell over what they think the true value of the market is. -You must buy at someone’s asking price or sell and someone’s bidding price. You cannot alter prices once they have been placed on the board.
After the initial round this process will be repeated in the same manner, periodically with us adding more information to the game in order to help you gage the true value of the product better. The game will end when you have all bracketed your bid/ask prices around what the true value of the asset is, and then we will count profits and losses of each team.
Some simple concepts that will guide you with your trading are:
- Active vs. Passive trading: Active trading is initiated by you, passive trading is initiated by someone else on your own bid/ask numbers.
- Risk- Reward- Those who wish to trade aggressively- by having there numbers the furthest from the other groups consensus will take on the most risk, those who stay close to the other market makers will not stand to loose much, but have smaller opportunity for gain as well.
- True Value- The actual value of the asset determined by those giving the experiment
- Fair Price- Not necessarily the true value, but an efficient market nonetheless because all of the bid/ask prices have bracketed a certain value
- Zero Sum- All profits and losses add to zero in this market, for every winner, there is a loser.
- Why Trade? There is no penalty for not trading, however, if you believe in your groups determination of the true value, then trading (buying at lower than true value, selling at higher than true vaule) will result in money gained
