Trading Stock in a Business Game: Theory and the Management of Unethical Behaviors

Abstract

We define three stages, 0 to 3, of human economic development, and argue that a Stage-3 game, where participants trade shares in the simulated companies that they manage, enables participants to practice high-level business-executive skills in a setting susceptible to the ethical issues of insider information, conflict of interest, and conspiracy. Recognizing that the ethical issues can be managed by punishment, omission, disclosure, diversion, and blocking, we argue that diversion and blocking are superior to the other methods. We describe how stock is traded in our Stage-3 game, and explain how we apply immediate update and disclosure to insider information, diversion to conflict of interest, and blocking to conspiracy. Primary-share trading, secondary-share trading, and statutory takeovers are covered. Two methods of diversion, the company-agent method and the screening-algorithm method are explained. That a business game might teach participants to avoid, through practice, unethical behaviors may be a novel perspective on the role of business games in business education.