Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108354
Authors: 
Kiss, Hubert János
Rodriguez-Lara, Ismael
Rosa-García, Alfonso
Year of Publication: 
2014
Series/Report no.: 
IEHAS Discussion Papers MT-DP - 2014/28
Abstract: 
We assess the impact of cognitive abilities on withdrawal decisions in a bank-run game. In our setup, depositors choose sequentially between withdrawing or keeping their funds deposited in a common bank. They may observe previous decisions depending on the information structure. Theoretically, the last depositor in the sequence of decisions has a dominant strategy and should always keep the funds deposited, regardless of what she observes (if anything). Recognizing the dominant strategy, however, is not always straightforward. If there exists strategic uncertainty (e.g., the last depositor has no information about predecessors' decisions) the identification of the dominant strategy requires harder thinking than when there is not strategic uncertainty (e.g., the last depositor is informed about all previous decisions). We find that cognitive abilities, as measured by the Cognitive Reflection Test (CRT), predict withdrawals in the presence of strategic uncertainty (participants with higher abilities tend to identify the dominant strategy more easily) but the CRT does not predict behavior when there is no strategic uncertainty.
Subjects: 
bank runs
coordination game
observability of actions
cognitive abilities
strategic uncertainty
JEL: 
C91
D03
D8
G02
J16
ISBN: 
978-615-5447-47-1
Document Type: 
Working Paper

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