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of the game. Its strength lies in that through
repeated play of the game the stochastic prop-
erties present in the game give the player a
perspective of the amount of risk present in
the cash market versus the risk remaining
after a hedge or put option has been used. An
intuitive understanding also evolves with
regard to the differences in the opportunities
and risks remaining when a hedge versus a
put option is used to reduce market risk. Also
the random variation present in the game
drives home the point that even the best form-
ed risk management plans and expectations
are subject to some unexpected variation.
Hence, well formulated risk management
plans may not always be the best given
perfect hindsight. Through repeated play of
the game, these dilemmas and an appreciation
for their nature are brought out. The player
learns to distinguish between poor results due
to bad planning versus “bad luck” from
market variation not controlled even with
good risk management. Perhaps most impor-
tantly, players learn to understand and accept
the consequences of their decisions, knowing
that what they seek and what they achieve
may not always be the same, but also knowing
that even though their goals are not always
fully realized, certain benefits can never-
theless be achieved through the use of options
and hedging. This type of maturity and depth
of understanding is highly desirable before
committing actual resources to the “real”
futures market. Classroom presentations and
written material do not readily give this kind
and depth of understanding. They are not
time dynamic, stochastic, or personal with
regard to the fact that it was uniquely the
player’s decision, his/her game, and his/her
set of consequences. The Market Risk Game is
dynamic, stochastic, and personal.

TARGET AUDIENCES AND INPUT
REQUIREMENTS

The program is targeted for use by pro-
ducers and students (university or high
school) with a limited knowledge of the con-
cepts ofhedging and options. More specifically,
the game is designed to be used as a follow-up
application exercise after an introductory
short course or series of class lectures on the
fundamentals of using the futures market for
risk management. By playing the game,
players can place the principles they have
learned into action and see them work. A
secondary use of the game is as a self-tutorial.
A User’s Manual is available with the game

141

(Ikerd) which explains the use of the game and
the fundamental principles of using hedging
and put options for market risk management.
After the principles discussed in the User’s
Manual (and perhaps other supporting
literature) have been studied, the game can be
used as a device to test one’s understanding of
these principles. Continued play and ex-
perimentation with the game will enhance the
player’s understanding of the dynamic and
stochastic nature of market risk management,
whether he∕she is self-instructed or has the
benefit of formal instruction in the fundamen-
tals of hedging and options use.

Playing the game requires no input data.
Likewise it requires no microcomputer exper-
tise. The game is “self-booting” and is entirely
menu driven. The game requires anywhere
from five to 25 minutes to play. The primary
factor affecting the time required to play the
game is the market strategy being pursued by
the player. Strategies that require specific
timing or searching for selected market condi-
tions will take longer. Length of play is also
affected by the player’s familiarity with the
program and by the particular random se-
quence of market conditions dealt. Players
who are unfamiliar with options available and
who wish to study the options before each
decision will take longer. As players become
familiar with the game, most games will re-
quire approximately 10 minutes or less to
complete.


SEQUENCE OF PLAY AND
UNDERLYING SIMULATION
FEATURES

Game Orientation and Alternatives Selection

Upon “booting” the program, players are
given a choice of playing either a beef cattle or
wheat simulation game. The games are similar
in concept but incorporate the different deci-
sion frameworks and market dynamics of grain
versus livestock markets.

After either the cattle or wheat game is
selected, the market∕asset situation and rules
of the game are explained through several
screens of text. Differences between the cat-
tle and wheat game become apparent in these
discussions. Basically, in the cattle game,
players are assumed to own a feedlot which
has fixed cost of operation per day whether
cattle are being fed or not. Players do not
initially own any cattle but may buy cattle at
any time. They may hedge their cattle upon
purchase with either a futures or options con-




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