Experiential Learning of the Efficient Market Hypothesis: Two Trading Games
19 Pages Posted: 14 Sep 2007
Date Written: August 15, 2007
Abstract
In goods markets an equilibrium price balances demand and supply; in a financial market an equilibrium price also aggregates people's information. And while the underlying efficient market hypothesis is one of the centerpieces of capital market theory, students often have difficulties grasping and accepting that asset prices fulfill this dual role of information and demand-supply aggregation. In this essay I present two simple classroom games that illustrate the workings of information transmission and aggregation through prices. The games are easy to comprehend for students, simple to perform and short. Each takes about 30 minutes, including classroom discussions, and by the end students will have an intuitive feel for the efficient market hypothesis.
JEL Classification: G14, A2
Suggested Citation: Suggested Citation
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