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Teaching Bank Runs with Classroom Experiments

Author

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  • Balkenborg, Dieter
  • Kaplan, Todd R.
  • Miller, Tim

Abstract

Once relegated to cinema or history lectures, bank runs have become a modern phenomenon that captures the interest of students. We use a simple classroom experiment based upon the Diamond-Dybvig Model (1983) to demonstrate how a bank run, a seemingly irrational event, can occur rationally. We then present possible topics for discussion including various ways to prevent bank runs and moral hazard.

Suggested Citation

  • Balkenborg, Dieter & Kaplan, Todd R. & Miller, Tim, 2009. "Teaching Bank Runs with Classroom Experiments," MPRA Paper 18635, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18635
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    References listed on IDEAS

    as
    1. Todd Kaplan, 2006. "Why banks should keep secrets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 341-357, January.
    2. Shy Oz & Stenbacka Rune, 2008. "Rethinking the Roles of Banks: A Call for Narrow Banking," The Economists' Voice, De Gruyter, vol. 5(2), pages 1-4, June.
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    Cited by:

    1. repec:taf:oaefxx:v:3:y:2015:i:1:p:1095448 is not listed on IDEAS
    2. Jonathan E. Alevy & Paul Ronald Johnson, 2013. "A Classroom Financal Market Experiment," Working Papers 2013-01, University of Alaska Anchorage, Department of Economics.
    3. Chakravarty, Surajeet & Fonseca, Miguel A. & Kaplan, Todd R., 2014. "An experiment on the causes of bank run contagions," European Economic Review, Elsevier, vol. 72(C), pages 39-51.
    4. Todd R. Kaplan & Dieter Balkenborg, 2010. "Using Economic Classroom Experiments," International Review of Economic Education, Economics Network, University of Bristol, vol. 9(2), pages 99-106.
    5. Maria Semenova, 2018. "A Bank Run in a Classroom: Do Smart Depositors Withdraw on Time?," HSE Working papers WP BRP 64/FE/2018, National Research University Higher School of Economics.

    More about this item

    Keywords

    bank runs; multiple equilibria;

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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