Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237756 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2021-023/I
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
In studies of bank runs the initial deposit decision is typically not taken into account. However, it is unlikely that people will entrust money to a bank that they expect to fail in the near future. The aim of this study is to investigate to what extent this mechanism prevents bank runs. It introduces an experiment in which participants first have to choose if they want to receive their endowments as a deposit in a `risky' bank that pays a high interest or a `safe' bank that pays a lower interest. After this decision they can withdraw the money from their account or leave it in to receive the interest. The availability of different deposit options leads to a very clear theoretical prediction: all choose to deposit in the risky bank with the high interest rate and consequently leave the deposit in the bank. In the experiment the first prediction is not confirmed: almost half of the participants choose to deposit in a safer alternative. However, in contrast to the control treatment in which participants are not offered a choice, only very few of those that choose the risky bank withdraw their deposits later.
Subjects: 
Bank runs
Initial deposit decision
Experimental economics
Coordination games
JEL: 
G21
G40
E71
D81
Document Type: 
Working Paper

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