Strategic Learning through Auctions: A Multi-Stage Classroom Game for Teaching Game Theory

Introduction

This article introduces a multi-stage classroom auction game designed to enhance student engagement and deepen understanding of core game theory concepts such as auctions, strategic decision-making, and resource allocation. Played in small teams, students participate in two sealed-bid auctions and one live English auction while managing a fixed budget, simulating both private- and common-value environments. The game fosters experiential learning through interactive competition, encouraging students to think critically about the winner’s curse, opportunity cost, and optimal bidding strategies. Based on over a decade of implementation in undergraduate courses, the game has consistently led to high levels of classroom participation and reflection. It addresses common limitations of lecture-based instruction by offering an accessible yet complex model for simulating dynamic, multi-round decision-making. The article discusses the game's theoretical foundations, variations in implementation, observed learning outcomes, and strategic implications. It concludes by reflecting on the broader pedagogical relevance of such games in fostering active learning and collaborative reasoning in economics and business education.

Keywords: Game theory, auction, classroom game, experiential learning, winner’s curse, strategy, pedagogy

JEL classification: A22, C72, D44, I21

1. Background

Over the past decade, I have taught game theory across several undergraduate programs at different universities, consistently encountering a central pedagogical challenge: how to help students internalize the logic of strategic decision-making in uncertain environments. While lectures and textbook problems offer conceptual clarity, they often fail to capture the dynamic, high-stakes nature of strategic interaction (Dixit 2005; Kolb 1984). This realization led to the design and evolution of a multi-stage classroom auction game, which has since become the centerpiece of my game theory pedagogy.

Although traditional lecture-based instruction—relying heavily on PowerPoint slides and boardwork—remains dominant in economics education (Geerling et al., 2021), there has been a growing emphasis on rethinking how complex concepts, such as those in game theory, are taught. In response to critiques of passive learning environments, recent innovations have introduced a range of active learning strategies aimed at increasing student engagement and comprehension. These efforts include the use of multimedia materials, such as clips from television and film, to illustrate strategic interactions (Dixit, 2005) and the incorporation of structured classroom experiments and simulations designed to bring abstract theoretical concepts to life (Shubik, 2002; Kaplan & Balkenborg, 2010; Geerling et al., 2021). This structure also aligns with the theory of gamified learning, which emphasizes that game elements enhance learning outcomes indirectly by fostering greater engagement and improved performance during the learning process (Landers, 2014). Moreover, integrating team-based competition through point awards and strategic bidding can enhance students’ intrinsic motivation and social relatedness—factors critical for maintaining long-term participation and deep learning. Effective instructional design, as emphasized by Sailer and Sailer (2020), requires matching challenge levels appropriately to student capabilities to avoid frustration and disengagement—an element carefully built into the design of the multi-stage auction game.

Game theory is a foundational pillar of economics, strategic management, and applied mathematics education. Yet, despite its theoretical elegance, teaching game theory often remains abstract, especially for undergraduate and MBA students. While lecture-based instruction and textbook models are essential, they may fall short in engaging students with the real-world dynamics of strategic decision-making under uncertainty, incomplete information, and bounded rationality. Experiential learning, particularly through classroom games and simulations, offers a dynamic alternative that connects theoretical concepts to practice. This article introduces a multi-stage classroom auction game developed to cultivate strategic thinking in a resource-constrained environment. Students, organized into small teams, participate in a sequence of auctions—two sealed-bid and one English-style—while managing a fixed budget. The game blends key game-theoretical insights such as opportunity cost, the winner’s curse, and equilibrium strategy with hands-on problem-solving and competition.

Originally implemented in an introductory game theory course at a liberal arts college in New England, this game has been refined over more than a decade. It consistently produces high levels of student engagement and deepens conceptual understanding. The remainder of the article is structured into two main sections: Game Structure and Pedagogical Foundations, which details the rules and theoretical framework, implementation and student experience; and Reflections and Conclusion, which offers insights into pedagogical effectiveness and broader educational relevance.

2. Game Structure and Pedagogical Foundations

This article presents an original, multi-stage classroom game designed to teach foundational and advanced concepts in game theory, particularly auction theory, strategic interaction, and decision-making under uncertainty. The game simulates a competitive environment in which students, organized into teams, participate in two sealed-bid auctions and one live English auction, all under a fixed budget constraint. The pedagogical aim is to provide experiential learning opportunities that reinforce theoretical insights such as the winner’s curse, opportunity cost, strategic risk-taking, and budget under common-value and private-value frameworks. This article outlines the structure of the game, its implementation, observed learning outcomes, and its value as a teaching tool in undergraduate and MBA-level economics and business courses.

Theoretical Foundations

The game is rooted in key game-theoretical concepts:

• Auction Types: Students experience both sealed-bid (first-price) and English-style (ascending bid) auctions.
• Private vs. Common Value: The first two sub-games are private-value auctions with direct individual rewards (+1 and +2 points, respectively), while the final game involves bidding for a jar of pennies—a common-value good.
• Budget Constraints: A fixed initial endowment forces players to allocate resources strategically across games.
• Winner’s Curse: In the common-value auction, students risk overbidding unless they estimate accurately.
• Strategic Uncertainty: Players must commit to sealed bids before knowing the outcome of future games.
• Tie-Breaking and Estimation: Estimation of the jar’s value serves not only for bidding but also as a tie-breaking mechanism.

Game Structure

Each team is given $100 in notional currency to allocate across three sub-games:

• Sub-game 1: Sealed-bid auction for +1 bonus point
• Sub-game 2: Sealed-bid auction for +2 bonus points
• Sub-game 3: Live English auction for a jar of pennies, the value of which is unknown in advance

Alternatively, instead of pennies, Sub-game 3 can be adapted using a jar filled with objects such as balloons or rubber bands to suit classroom preferences or logistical constraints. In such cases, each balloon might be assigned a value of $2 and each rubber band a value of $1. This variation maintains the common-value estimation challenge while adding thematic flexibility or visual appeal. When using pennies, an effective instructional enhancement involves placing a freshly opened roll of pennies into the jar in full view of the students. This provides them with a concrete visual reference for estimating the number of coins in the jar, reinforcing the connection between observation and valuation strategies. This practice has been shown to improve estimation accuracy while maintaining the suspense and competitiveness of the game. Teams must submit sealed bids for the first two games before participating in the third. The team that wins two out of three games receives an additional +10 points on the final exam, creating strong incentives for balanced and forward-looking strategies.

Implementation and Student Experience

The game can be run in a single class session (50-75 minutes) and requires envelopes, a jar filled with a known number of pennies, and a whiteboard or slide to track results. All rules, constraints, and outcomes must be clearly communicated. The instructor acts as the auctioneer in the live bidding round. Tie-breakers are resolved based on the accuracy of teams’ jar estimates.

The game functions most effectively with three to five teams. This allows for sufficient competitive tension without overwhelming complexity. Each team should consist of three to four students. This team size ensures diverse viewpoints and strategic collaboration, while still allowing all students to participate actively. Larger teams tend to dilute participation, while smaller teams may lead to narrow decision-making or overly rapid consensus.

Preparation Steps: Before class, prepare the jar with a known number of pennies or substitute objects (e.g., balloons or rubber bands). Optionally, display a full roll of pennies to give students a visual reference for estimating the jar’s contents. Print and distribute instruction sheets detailing the rules for all three sub-games, or explain them clearly using a slide presentation. Clarify that once the instructions are handed out, the game has officially started and no further clarifications will be given. Encourage students to rely on their team’s collective reasoning—if something seems unclear, they should make a decision together using common sense, rather than asking the instructor for further clarification. Provide each team with a large, colored index card to refer to their team (e.g., Team Red, Team Blue). Teams will use these cards to identify themselves and to place bids during the live auction by raising their card. This not only streamlines the auction process by making bids clearly visible but also enhances the authenticity and engagement of the game.

Classroom Execution Steps

Divide students into teams of 3–4 members. Ideally, form 3 to 5 teams in total. Distribute $100 in notional currency to each team. Teams must allocate this amount across the three sub-games before any bidding begins. Budget allocations are final and cannot be revised once submitted. Allow 10 minutes for teams to develop their strategy based on the game instructions. During this time, teams should determine how to divide their budget, prepare their bids for Sub-games 1 and 2, and form an initial estimation strategy for the penny jar. After the strategy session, ask all teams to leave the classroom. Then, invite each team back one at a time and give them 4 minutes alone to examine the jar and make their estimate of its total value. This estimation will be used both as a strategic reference and as a tie-breaker in Sub-games 1 and 2.

Sub-game 1 and Sub-game 2 (Sealed-Bid Rounds): Teams submit their sealed bids for both Sub-games 1 (+1 bonus point) and 2 (+2 bonus points) at the same time, in separate envelopes. These are collected before the live auction begins. Winning teams pay their bid amounts from their allocated budgets. Sub-game 3 (Live English Auction): Conduct a live, open-bid auction for the penny jar. Start from a minimum bid (e.g., $1) and continue until no higher bids are made. The winning team pays their bid from their remaining budget. Determine the overall winner: The team that wins any two of the three sub-games receives a +10 bonus on their final exam.

Possible Results and Strategic Dynamics

There are multiple potential outcomes, reflecting varying levels of success and risk appetite. A team might win the game by:

• Winning the first two sub-games through aggressive sealed bids, leaving them with no funds for the jar but still securing overall victory.
• Winning one sealed-bid game and successfully using their remaining budget to win the penny jar auction, thus achieving a 2-of-3 game win.
• Estimating the jar value accurately and bidding conservatively to win Game 3, but failing to win the overall game due to poor early-game allocation.

These outcomes demonstrate key lessons in opportunity cost, forward planning, and calculated risk. Students also experience the strategic dilemma of deciding whether to spend early to secure a lead or save budget for the uncertain but potentially pivotal final auction.

Learning Outcomes

Students acquire a deep, applied understanding of:

• Auction formats and strategic bidding
• Opportunity cost and resource allocation
• Risk under uncertainty and incomplete information
• Behavioral game theory (aggression, bluffing, hedging)

Strategic Analysis and Theoretical Implications

Anecdotal feedback suggests high engagement and improved conceptual retention compared to traditional lecture formats. Instructors may follow the game with a debrief session or reflection paper in which students analyze their strategies and outcomes. Key reflective prompts include:

This multi-stage auction game offers a compact, dynamic, and high-impact method for teaching game theory through experiential learning. Its layered structure encourages critical thinking and mirrors real-world strategic environments. Given its adaptability, the game is suitable for a wide range of academic settings, from introductory economics to advanced strategy courses. This auction game is not only an engaging classroom exercise, but it also addresses a broader pedagogical gap in economics and business education. Traditional lecture-based instruction often struggles to convey the practical intricacies of strategy under uncertainty, bounded rationality, and iterative decision-making. This game contrasts starkly with static textbook exercises by simulating dynamic, multi-round competitive behavior within a constrained resource setting.

Students report high levels of engagement, competitive enthusiasm, and self-reflection on strategic errors.

3. Reflections and Conclusion

This multi-stage auction game represents a powerful pedagogical tool for engaging students in complex strategic reasoning. Drawing from over a decade of use in a game theory course, the game successfully bridges theoretical content with experiential practice. Students actively engage in auctions that challenge them to apply principles of estimation, opportunity cost, risk management, and group collaboration in a dynamic setting.

The structure of the game—two sealed-bid auctions followed by a live English auction—introduces students to both private- and common-value auction formats. Its rule-bound yet competitive format cultivates classroom excitement and encourages reflective learning. Instructors can adapt the game using alternative objects, such as rubber bands or balloons, to enhance its visual appeal and valuation logic. Beyond its entertainment value, the game serves as a conceptual anchor for post-game debriefing on strategy, behavioral economics, and simulation-based modeling. As economic education continues to emphasize active learning, this game stands as a durable, scalable, and theory-rich model that can be incorporated across various levels of instruction.

A notable implementation of this game has occurred in an introductory-level game theory course cross-listed between the Economics and Mathematics departments at a small public liberal arts college in New England. I have used this game consistently over the past decade with cohorts of 20 to 25 students, typically organized into four to five teams. Given the slightly more complex structure of the game—particularly the combination of sealed and live auctions, budget constraints, and forward planning under uncertainty—students often require a clear and thorough explanation of the rules to engage effectively and avoid procedural errors. Despite occasional challenges in rule-following, the game has consistently fostered a highly interactive and enjoyable classroom environment. Students become notably enthusiastic, particularly during the English auction for the penny jar, which fosters camaraderie, laughter, and competitive spirit. This has proven especially effective in increasing student engagement toward the end of the semester when motivation typically wanes.

One pedagogical limitation is the timing of the game within the course structure. Because the game is most effective after students have learned about different auction formats, it is usually scheduled near the end of the term. However, I suggest that introducing the game earlier—perhaps in a simplified form—could also serve as an excellent icebreaker, promoting early engagement and team bonding. 

Preliminary implementation of this game in undergraduate game theory courses reveals multiple insights. Students report high levels of engagement, competitive enthusiasm, and self-reflection on strategic errors. A common observation is the recognition of the winner’s curse after aggressive overbidding in the penny jar auction. Conversely, some teams hoard budget early, only to discover the jar auction is less winnable due to precise estimation by others. Compared to standard auction classroom experiments—which typically involve a single auction type and limited payoff structures—this three-part game interlaces private and common-value auctions, forcing students to prioritize and sequence decisions while anticipating opponents’ moves. The tension between short-term gain and long-term strategy is a central takeaway.

I see this game not merely as a teaching tool but as a pedagogical model for active learning in economics. It bridges theory and application, individual thinking and group dynamics, analytic logic and real-world uncertainty. More than any lecture I have given on game theory, this game helps students internalize the subject’s relevance—and that, in the end, is what enduring teaching looks like.

References

Dixit, A. (2005). Restoring fun to game theory. The Journal of Economic Education, 36(3), 205-219. https://doi.org/10.3200/JECE.36.3.205-219

Geerling, W., K. Nagy, E. Rhee, T. Nicola and J. Wooten. (2021). Using Squid Game to Teach Game Theory. Available at SSRN: https://ssrn.com/abstract=3990316 

Kaplan, T.R., & Balkenborg, D. (2010). Using economic classroom experiments. International Review of Economics Education, 9(2), 99-106. https://doi.org/10.1016/S1477-3880(15)30047-5

Kolb, D. A. (1984). Experiential learning: Experience as the source of learning and development. Englewood Cliffs, NJ: Prentice Hall.

Landers, R. N. (2014). Developing a Theory of gamified learning: Linking serious games and gamification of learning. Simulation & Gaming, 45(6), 752–768. https://doi.org/10.1177/1046878114563660

Sailer, M., & Sailer, M. (2021). Gamification of in-class activities in flipped classroom lectures. British Journal of Educational Technology, 52(1), 75–90. https://doi.org/10.1111/bjet.12948

Shubik, M. (2002). The uses of teaching games in game theory classes and some experimental games. Simulation & Gaming, 33(2), 139-156. https://doi.org/10.1177/1046878102332002