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Does response time predict withdrawal decisions? Lessons from a bank-run experiment

Author

Listed:
  • Hubert Janos Kiss

    () (Research fellow in the Momentum (LD-004/2010) Game Theory Research Group, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences Department of Economics, Eötvös Loránd University, Budapest, Hungary.)

  • Ismael Rodriguez-Lara

    () (Department of Economics, Middlesex University London, UK)

  • Alfonso Rosa-Garcia

    () (Facultad de Ciencias Jurídicas y de la Empresa, Universidad Católica San Antonio, Murcia, Spain)

Abstract

We study how response time in a laboratory experiment on bank runs affects withdrawal decisions. In our setup, the bank has no fundamental problems, depositors decide equentially (if to keep the money in the bank or to withdraw) and may observe previous decisions depending on the information structure. We consider two levels of difficulty of decisionmaking conditional on the presence of strategic dominance and strategic uncertainty. We posit that i) decisions in information sets characterized by the lack of strategic dominance are more difficult than in those with strategic dominance; ii) in the latter group, decisions are more difficult when there is strategic uncertainty. We investigate how response time associates with the difficulty and optimality of withdrawal decision. We hypothesize that a) the more difficult the decision, the longer the response time; b) the predictive power of response time depends on difficulty. We find that response time is longer in information sets with strategic uncertainty compared to those without (as expected), but we do not find such relationship when considering strategic dominance (contrary to our hypothesis). Response time correlates negatively with optimal decisions in information sets with a dominant strategy (contrary to our expectation) and also when decisions are obvious in the absence of strategic uncertainty (in line with our hypothesis). When there is strategic uncertainty, we find suggestive evidence that response time predicts optimal decisions. Thus, freezing deposits for some time may be beneficial and help to avoid massive withdrawals as it engthens response times.

Suggested Citation

  • Hubert Janos Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2018. "Does response time predict withdrawal decisions? Lessons from a bank-run experiment," IEHAS Discussion Papers 1809, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:1809
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    bank run; cognitive abilities; coordination games; dominant strategy; experiment; response time; sequential rationality; strategic uncertainty;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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