Can The Banks Cheat? : Planet Money So the government is planning to spend billions of dollars buying those toxic mortgage assets from banks.
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Can The Banks Cheat?

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David Kestenbaum/NPR

So the government is planning to spend billions of dollars buying those toxic mortgage assets from banks.

But how does it make sure it doesn't get ripped off?

I went to a dress-rehearsal of the buy-up run by some auction experts at the University of Maryland. There was something like $14,000 at stake, and over a dozen students playing for keeps.

And yes, some -- like the student above -- were looking for ways to game the system.

The students (playing the role of the banks) all sat in tiny cubicles with computers recessed into the desks. They were supposed to place bids -- the price at which they were willing to sell their toxic mortgages to the government.

In the game the government isn't going to buy up all the bad assets. So you have to be one of the low bidders.

The system, called a reverse auction, is supposed to be hard to cheat at. But that doesn't mean people won't try.

Two students seated next to each other were talking about colluding to keep the bids high. And another had come up with a scheme to keep the bids high, by sending signals through his subsequent bids.

The organizers pointed out that collusion would be illegal in the real world.

"I know we have some computer science grad students out there," said Peter Cramton a professor of economics who had helped design the experiment, before warning the students not to try to hack into the software. "That would violate the university's honor code."

If the students find a way to game the system, the experiment could cost the university more than it plans to spend.

Still, low stakes compared to the real thing.