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

Listed author(s):
  • 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)

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.

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File URL: http://econ.core.hu/file/download/mtdp/MTDP1553.pdf
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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1553.

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Length: 44 pages
Date of creation: Oct 2015
Handle: RePEc:has:discpr:1553
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  4. Kiss, Hubert J. & Rodriguez-Lara, Ismael & Rosa-Garcia, Alfonso, 2014. "Do women panic more than men? An experimental study of financial decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 52(C), pages 40-51.
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