Bruno Sultanum, University of Essex

Paper: Fiat Money with a Finite Horizon: Theory and Experimental Evidence

Abstract:  This is a theoretical and experimental study in monetary economic with finite horizon models, which is desirable because subjects cannot be kept in labs forever. Using insights from dynamic game theory, money is valued despite a finite horizon due to an endgame with multiple equilibria. Monetary exchange is desirable, but potentially hard to get since there are always nonmonetary equilibria. Hence we consider strategy suggestions. In experiments monetary exchange emerges when suggested; otherwise outcomes are almost autarky. Other treatments try suggestions that are not incentive compatible, which are largely ignored, showing they are coordination devices, not rules participants follow mechanically.