Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222039 
Year of Publication: 
2018
Series/Report no.: 
IEHAS Discussion Papers No. MT-DP - 2018/26
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Budapest
Abstract: 
We study how lines form endogenously in front of banks when depositors differ in their liquidity needs. Our model has two stages. In the first one, depositors choose the level of costly effort they want to exert to arrive early at the bank which determines the order of decisions. In the second stage, depositors decide whether to withdraw or to keep the funds deposited. We consider two different informational environments (simultaneous and sequential) that differ in whether or not depositors can observe the decision of others during the second stage of the game. We show theoretically that the informational environment affects the emergence of bank runs and thus should influence the willingness to rush to the bank. We test the predictions in the lab, where we gather extensive data on individual traits to account for depositors' heterogeneity; e.g. socio-demographics, uncertainty attitudes or personality traits. We find no significant differences in the costly effort to arrive early at the bank neither across the informational environments, nor according to the liquidity needs of the depositors. In the sequential environment, some depositors rush to the bank because they are irrational and do not recognize the benefits of observability in fostering the coordination on the no-bank run outcome. There is also evidence that some depositors rush to keep their funds deposited and to facilitate coordination on the efficient outcome. Finally, we document that loss aversion is an important factor in the formation of the line.
Subjects: 
bank runs
coordination problems
endogenous formation of lines
loss aversion
risk aversion
experimental economics
game theory
sequential games
simultaneous games
JEL: 
C91
D03
D8
G02
J16
Document Type: 
Working Paper

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