A Search-Theoretic Classroom Experiment with Money

This classroom experiment promotes discussion of the social origins and characteristics of money. Students take the roles of traders who face a double coincidence of wants problem. As they recognise the benefits of overcoming trading frictions, students spontaneously begin using a consumption good as a medium of exchange. The setting comes from Duffy and Ochs' (1999) experimental version of the Kiyotaki-Wright (1989) search model of money. In the Kiyotaki-Wright environment, agents specialise in production, consume a good other than their own product, and randomly meet in pairs to trade. Trading in this environment allows students to experience the social conditions that give rise to money, namely specialisation and decentralisation. The experiment also demonstrates how a particular characteristic can make a commodity a good candidate for becoming money.