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Would depositors like to show others that they do not withdraw? Theory and Experiment

Author

Listed:
  • Markus Kinateder

    (Departamento de Economía, Edificio de Amigos, Universidad de Navarra)

  • Hubert Janos Kiss

    (Momentum Game Theory Research Group - Institute of Economics - Centre for Economic and Regional Studies - Hungarian Academy of Sciences and Department of Economics, Eötvös Loránd University)

  • Agnes Pinter

    (Department of Economic Analysis, Universidad Autónoma de Madrid)

Abstract
There is an asymmetry regarding what previous decisions depositors may observe when choosing whether to withdraw or keep the money deposited: it is more likely that withdrawals are observed. We study how decision-making changes if depositors are able to make their decision to keep their funds in the bank visible to subsequent depositors at a cost. We show theoretically in a Diamond-Dybvig setup that without this signaling option multiple equilibria are possible, while signaling makes the no-run outcome the unique equilibrium. We test if the theoretical predicitions hold in a lab experiment. We find that indeed when signaling is available, bank runs are less likely to arise and signaling is extensively used.

Suggested Citation

  • Markus Kinateder & Hubert Janos Kiss & Agnes Pinter, 2015. "Would depositors like to show others that they do not withdraw? Theory and Experiment," CERS-IE WORKING PAPERS 1553, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1553
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Gary Charness & Celia Blanco-Jimenez & Lara Ezquerra & Ismael Rodriguez-Lara, 2019. "Cheating, incentives, and money manipulation," Experimental Economics, Springer;Economic Science Association, vol. 22(1), pages 155-177, March.
    2. Masiliūnas, Aidas, 2017. "Overcoming coordination failure in a critical mass game: Strategic motives and action disclosure," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 214-251.
    3. Hubert Janos Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2018. "Who runs first to the bank?," CERS-IE WORKING PAPERS 1826, Institute of Economics, Centre for Economic and Regional Studies.
    4. Kiss, Hubert János & Rodriguez-Lara, Ismael & Rosa-Garcia, Alfonso, 2022. "Who withdraws first? Line formation during bank runs," Journal of Banking & Finance, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    Bank runs; Asymmetric information; Experimental evidence; Signaling;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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