Edit: You have to use rvm or rbenv to set ruby version. This is not set in the gem file. Ruby is not a gem.
This error might have one of many reasons.
From the Bundler issues
# remove user-specific gems and git repos
rm -rf ~/.bundle/ ~/.gem/bundler/ ~/.gems/cache/bundler/
# remove system-wide git repos and git checkouts
rm -rf $GEM_HOME/bundler/ $GEM_HOME/cache/bundler/
# remove project-specific settings
rm -rf .bundle/
# remove project-specific cached gems and repos
rm -rf vendor/cache/
# remove the saved resolve of the Gemfile
rm -rf Gemfile.lock
# uninstall the rubygems-bundler and open_gem gems
rvm gemset use global # if using rvm
gem uninstall rubygems-bundler open_gem
# try to install one more time
bundle install