Experimental Evidence on the ‘Insidious’ Illiquidity Risk
AbstractThis paper brings experimental evidence on investors’ behavior subject to an "illiquidity" constraint, where the success of a risky project depends on the participation of a minimum number of investors. The experiment is set up as a frameless coordination game that replicates the investment context. Results confirm the insidious nature of the illiquidity risk: as long as a first illiquidity default does not occur, investors do not seem able to fully internalize it. After several defaults, agents manage to coordinate on a default probability above which they refuse to participate to the project. This default probability is lower than the default probability of the first illiquidity default.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number WP1107.
Length: 27 pages
Date of creation: 13 Jul 2011
Date of revision:
Coordination game; Illiquidity risk; Threshold strategy; Experimental economics;
Other versions of this item:
- Damien Besancenot & Radu Vranceanu, 2011. "Experimental Evidence on the 'Insidious' Illiquidity Risk," Post-Print hal-00607867, HAL.
- Damien Besancenot & Radu Vranceanu, 2011. "Experimental Evidence On The 'Insidious' Illiquidity Risk," CEPN Working Papers halshs-00602107, HAL.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Maria Giovanna Devetag, 2002.
"Coordination and information in critical mass games: an experimental study,"
CEEL Working Papers
0214, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- Giovanna Devetag, 2003. "Coordination and Information in Critical Mass Games: An Experimental Study," Experimental Economics, Springer, vol. 6(1), pages 53-73, June.
- repec:hal:wpaper:halshs-00424214 is not listed on IDEAS
- Miller, Marcus & Stiglitz, Joseph E, 2009.
"Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?,"
CEPR Discussion Papers
7469, C.E.P.R. Discussion Papers.
- Marcus Miller & Joseph Stiglitz, 2010. "Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?," Economic Journal, Royal Economic Society, vol. 120(544), pages 500-518, 05.
- Marcus Miller & Joseph E. Stiglitz, 2010. "Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?," NBER Working Papers 15817, National Bureau of Economic Research, Inc.
- Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990.
"Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure,"
American Economic Review,
American Economic Association, vol. 80(1), pages 234-48, March.
- John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 1225, David K. Levine.
- J. B. Van Huyck & R. C. Battalio & R. O. Beil, 2010. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 661465000000000393, David K. Levine.
- Radu Vranceanu & Damien Besancenot, 2010.
"Banks' risk race: A signaling explanation,"
- Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
- Besancenot, Damien & Huynh, Kim & Vranceanu, Radu, 2004. "Default on sustainable public debt: illiquidity suspect convicted," Economics Letters, Elsevier, vol. 82(2), pages 205-211, February.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, May.
- Viktoriya Semeshenko & Alexis Garapin & Bernard Ruffieux & Mirta Gordon, 2010. "Information-driven coordination: experimental results with heterogeneous individuals," Theory and Decision, Springer, vol. 69(1), pages 119-142, July.
- Rochet, Jean-Charles & Vives, Xavier, 2002.
"Coordination failures and the lender of last resort : was Bagehot right after all?,"
HWWA Discussion Papers
184, Hamburg Institute of International Economics (HWWA).
- Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
- Rochet, Jean-Charles & Vives, Xavier, 2004. "Coordination Failures and the Lender of Last Resort : Was Bagehot Right After All?," IDEI Working Papers 294, Institut d'Économie Industrielle (IDEI), Toulouse.
- Rochet, Jean Charles & Vives, Xavier, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," CEPR Discussion Papers 3233, C.E.P.R. Discussion Papers.
- Jean-Charles Rochet & Xavier Vives, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," FMG Discussion Papers dp408, Financial Markets Group.
- Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, 09.
- Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Frank Heinemann, 2000. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 316-318, March.
- Philippe Madi�s, 2006. "An Experimental Exploration of Self-Fulfilling Banking Panics: Their Occurrence, Persistence, and Prevention," The Journal of Business, University of Chicago Press, vol. 79(4), pages 1831-1866, July.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Berninghaus, Siegfried K. & Ehrhart, Karl-Martin, 2001. "Coordination and information: recent experimental evidence," Economics Letters, Elsevier, vol. 73(3), pages 345-351, December.
- Damien Besancenot & Radu Vranceanu, 2007. "Financial Instability under a Flexible Exchange Rate," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 291-302, 06.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sophie Magnanou).
If references are entirely missing, you can add them using this form.