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

Markus Kinateder, Hubert Janos Kiss and Ágnes Pintér

No 1553, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: 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.

Keywords: Bank runs; Asymmetric information; Experimental evidence; Signaling (search for similar items in EconPapers)
JEL-codes: C72 C91 D80 G21 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2015-10
New Economics Papers: this item is included in nep-cfn, nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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