Level 4 of 5 in the Capital Valley game

Crisis and liquidity: living through a crash

A level is a run of 12 turns, about 30 minutes of play, that represents one year in an investor's life. This lesson plan covers level 4.

Where it fits in the curriculum

Curriculum fit: explaining financial crises and regulating the financial system (bubbles, herd behavior, panic, contagion; Grade 12 (US) / Year 13 (UK), ages 17-18). Also market failures (Grade 11 (US) / Year 12 (UK), ages 16-17), and personal wealth management in business and management programs.

Concepts covered: the liquidity scale and the illiquidity premium, real assets and rental income, systemic risk and contagion, volatility, unrealized and realized losses, herd behavior and loss aversion, return to fundamental value.

Learning objectives

By the end of the session, students can:

1. Rank the game's investments from the easiest to cash out to the most locked up, and explain why money that is locked up has to be paid more.
2. Describe how a market crisis unfolds: the signals, the panic, the general fall, and then a recovery with no news behind it.
3. Distinguish an unrealized loss from a realized one.
4. Explain why what holds up in a crisis is decided beforehand, through the allocation, and not while the crisis is happening.

How the game works

Each student manages a virtual portfolio. Every turn brings one or two news items (official announcements, rumors, and so on) and an investment decision. The consequences arrive on the next turn, explained by a "Here's why" card. A virtual advisor, a character in the game, introduces each new element and comments on the results. Nothing in the game is left to chance. The world is the same for every student in a game, and only their decisions differ, which is what makes a rigorous debrief possible.

What students experience in level 4

These moments are guaranteed in every game, but this lesson plan does not say when they come or how they turn out. The teacher can build the debrief on them, and a student who reads it gains nothing. The cause of the crisis (a tech bubble, the failure of a giant, debt, fraud, world trade, insurance...) depends on the game; its mechanism does not.

• Arrival in Tokyo. A bonus is paid. The virtual advisor introduces two new investments: the Real Estate Fund (rent every turn, each payment locked up for twelve turns) and Private Equity (subscription open for a few turns only, capital returned at the end of the game with a gain).
• On the third turn of the level, earnings season: the previous level's accounts, and everything listed reacts.
• Long storylines, revelations, and reversals, including a storyline where the market gets scared before it knows: the price falls on a doubt, then the facts decide.
• A crisis. Three signals in a row (an expert's view, an official announcement, a rumor) while nothing moves yet; then panic news; then a fall in everything listed over three turns, close to a fifth, healthy companies included; the bottom and its news item; then a full recovery over five turns, each turn with its own news item, until prices are back where they were before the storm, before the recap. No storyline runs during the fall.
• The level recap: those who held got everything back, those who sold at the bottom lost for real, and what was invested outside the listed market did not panic. Coupons and rents kept being paid.

Minute-by-minute plan (computer lab)

1. Picking up (5 min). Each student reopens their game. A one-sentence reminder of the level 3 recap: where the result came from, coupons or prices.

2. Guided opening turn (5 min). On the projector: the bonus and the two new investments presented by the virtual advisor. A quick question before everyone confirms their decision: "Locking money up for two levels: on what condition would you accept it?" Have students note who subscribes to Private Equity and who invests in real estate. You will come back to it in the debrief.

3. Independent play through the recap (25 min). Students move at their own pace. Two one-sentence freeze-frames: when several news items follow one another on the same subject ("Signal or noise?") and at the worst of the fall ("Who sold? Don't say anything yet.").

4. Class debrief (12 min). Working from the recaps on the students' screens, guide the discussion with the questions below. Show of hands: who sold during the fall, who held, who bought back at the bottom, who had locked money up at the start of the level.

5. Wrap-up (8 min). Four lines to write down: the longer money is locked up, the more it must be paid; a crisis hits everything listed, healthy companies included; as long as you do not sell, it is a value that moves, not a loss; whoever holds gets everything back, whoever sells at the bottom loses for real.

Flipped classroom

The assignment at the end of the previous session: "Play level 4 for next time, about 30 minutes. Write down what you did with the bonus, and what you did during the fall." The next session opens with a 20-minute debrief using the same questions, then the wrap-up.

Debrief questions

• Signals came before the fall. Who read them as signals? Who acted? At the time, could you tell a signal from an ordinary news item?
• During the fall, who sold, and when? What happened to those who held? What was the hardest thing not to do, and why?
• What did your investments outside the listed market do during the fall? Is that because they are "better"? What did they cost in exchange?
• At the start of the level, a bonus and two new investments. Who locked money up for two levels? What held you back? After the crisis, do you regret it?
• After the bottom, the market rose five turns in a row, back to where it was before. What did the recovery news say? Who bought back at the bottom, and why so few? What does that say about the price during the panic?

Going further

• Next session: level 5, inflation, the central bank, and interest rates. Previous session: level 3.
• Research activity: pick a real financial crisis and find, in the news coverage of the time, three signals that came before it. Then say whether they could be read as signals at the time.
• Taking part in Global Money Week (March) with a tournament between classes.

Practical details

• Access: https://capitalvalley.app/education
• The student version needs no account, no email address, and no personal data. Suitable for use at school, in the computer lab or on a smartphone.
• Teacher contact: [email protected]