Do Smart Depositors Avoid Inefficient Bank Runs? An Experimental Study

Maria Semenova

Emerging Markets Finance and Trade, 2023, vol. 59, issue 8, 2710-2726

Abstract: This paper investigates whether being smart makes depositors less prone to getting involved in a bank run. We conduct a series of experiments with students, modeling the a-la Diamond-Dybvig deposit market with liquidity shocks, changing macroeconomic conditions, and risk-based investment technologies. Our results suggest that smarter depositors – those having better academic achievements – choose the strategy of avoiding early withdrawals more frequently, adding to the evidence that higher financial literacy may prevent coordination failures in deposit markets. We also suggest that panic withdrawals are more probable in markets with poorer economic conditions, but depositors show weak sensitivity to bank investment risks.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:59:y:2023:i:8:p:2710-2726

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DOI: 10.1080/1540496X.2023.2190845

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