Teaching Auction Theory to Finance Students

Abstract

Auctions are generally taught in economics courses in a
discussion of game theory or mechanism design. While the topic
is important from a theoretical perspective, it is also crucial to
students' understanding of how capital markets work, yet few
instructional techniques exist for incorporating auctions into
classroom discussions in finance courses. This article
summarizes a great exercise/game that allows students to learn
about auctions through participation in a series of actual
auctions. The exercise is designed for a single class period of
eighty to ninety minutes. We have used the game as an
introduction to courses in both corporate finance and financial
markets and institutions both at the undergraduate and graduate
levels. It has been well received by students at numerous
universities.