Strategic uncertainty and the power of extrinsic signals– evidence from an experimental study of bank runs

Jasmina Arifovic and Janet Hua Jiang

Journal of Economic Behavior & Organization, 2019, vol. 167, issue C, 1-17

Abstract: We investigate how the level of strategic uncertainty affects the coordination power of publicly observed extrinsic signals in a controlled laboratory environment in the context of a bank-run game. We run three treatments featuring different levels of strategic uncertainty. Although theory predicts that an equilibrium where agents’ choices and economic outcomes follow the realization of the extrinsic signal exists in all treatments, strong responses to the extrinsic signal occur only in the treatment where strategic uncertainty is high.

Keywords: Bank runs; Extrinsic signals; Sunspots; Experiment; Financial crises; Strategic uncertainty (search for similar items in EconPapers)
JEL-codes: C92 E58 G20 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:167:y:2019:i:c:p:1-17

DOI: 10.1016/j.jebo.2019.06.023

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