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Irrational Exuberance_

VIEWS: 4 PAGES: 2

  • pg 1
									                        Irrational Exuberance!
Objective: To understand and exploit the underlying physical system for fun and profit at the
New Haven/Yale Stock Exchange (NHYSE*), where


                      Cooperation Beats the Competition

Premise: Physicists investigate phenomena by poking and probing systems with tools of their
own manufacture. They look for resonances. They develop models of behavior for these
systems. Physicists who go into finance try to do the same thing, with the added incentive of
turning a profit. Here, you have the opportunity to probe and poke a glider on an air track and
then a rotating table with compressed air impulses. Primitive economic theory suggests that
increased demand for an asset will lead to an increase in its price. In our game, hitting “buy” on
the screen will cause a temporary rise in price. Inversely, with “sell.” The price will start at $50
at the beginning of the event and end at $50 at the end of the event to prevent “marking the
tape.” There will be five trading sessions during which reality will be modified. Your score at
the end of each session will be recorded (the price will not necessarily be $50 at the end of the
first three sessions). Your high-water mark (highest portfolio value: cash and stock) will be
your final score. This is not a “fair” game, nor a real one, and past performance is no guarantee
of future returns.


Materials: An E-Mac and a Mouse per team. One physical system consisting of an air track, a
few gliders, lots of electronics and fuel injectors. The second is a rotating table with cards for
catching the air pulses and a rotation sensor. Set your browser (Firefox) to
http://128.36.107.230/sid/test.php (there should be a bookmark visible).

Rules: We will flout the regulations put in place by the Securities and Exchange Commission in
the Securities Exchange Acts of 1933 and 1934 in our exchange. Your goal is to buy and sell our
Yale Blue Sky stock (YBS)             with your initial stake of $100,000 and make as
much money as possible during the five trading sessions run. Your buying power is limited to
your remaining cash. No trading on margin. No short selling either. That means you can only
sell shares you own. Each session will be 4 minutes long, (except for the last, which will be 10
minutes) with 3 minute intervals for intergroup communication. You are not required to talk to
each other. It is entirely up to you (no fisticuffs, please).

          Pump and Dump: (4 minutes) This scheme is a favorite of online spammers.
          Have you seen any in your inbox lately? The airtrack is tilted so the price drifts down.
          The price is measured by the round trip time for sound pulses emitted by an object
          called a “sonic ranger” to the YBS sign on the glider. Bats echolocate in a similar
          way.

          Market Manipulation: (4 minutes) Can you figure out how to set off wild
          oscillations of the market and make money at the same time? The vertical spring
          makes this system an x3 oscillator, not a simple harmonic oscillator. Ask for an
          explanation.

          The Chairmen of the (Big) Board:                         (4 minutes) Try to make as
          much money as you can on our level playing field despite the moderating influences of
          the Chairmen of the Fed, past and present. Their actions in our game serve to limit,
          rather than damp, the oscillations, and they add a somewhat random element.

          Opposite Day (Trading):                  (4 minutes) We now give a kick in the leg to
          economic theory and make the price go down when you buy and up when you sell. Be
          careful! Is it true that you should always “Buy Low and Sell High?” The effect you
          will observe is familiar to physicists who put an extra negative sign in their feedback
          loops.

          Spin City:        (10 minutes) In this event, the price is related to the angular velocity
          of a rotating table. The price can go down to zero or increase without limit. Good
          luck, and bet with your head, not over it.


Team Name


UserID


PS What do Klotho, Arachne, Spiderman!, and Rumpelstiltskin all have in common?
* The “H” is silent

								
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