Nationalization and Privatization in a Computer-Assisted Business Game

Abstract

We incorporated nationalization and privatization in an idealized manner into a computer-assisted business game by having the virtual government offer to buy and sell shares at $1 per share below book value. We found that the rescue function of the government trading in shares dominated the liquidity function in the game. When firms in which the government owns more than 50% of the outstanding shares incur losses, a government-do-nothing policy that incentivizes risk-taking gave rise to a higher rate of firm insolvency accompanied by higher mean participant performance, results that support prospect theory, which takes the position that people generally overvalue certainty. We argue that business games with idealized features can lead participants to question why similar features are not present in the everyday world, thereby inducing the participants to look forward into the future.