Do social networks prevent bank runs?
Alfonso Rosa García,
Hubert Janos Kiss and
Ismael Rodríguez Lara
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Alfonso Rosa García: Universidad de Murcia
Ismael Rodríguez Lara: Universidad de Alicante
Authors registered in the RePEc Author Service: Alfonso Rosa-García () and
Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)
We develop, both theoretically and experimentally, a stereotypical environment that allows for coordination breakdown, leading to a bank run. Three depositors are located at the nodes of a network and have to decide whether to keep their funds deposited or to withdraw. One of the depositors has immediate liquidity needs, whereas the other two depositors do not. Depositors act sequentially and observe others actions only if connected by the network. Theoretically, a link connecting the first two depositors to decide is sufficient to avoid a bank run. However, our experimental evidence shows that subjects¿ choice is not affected by the existence of the link per se. Instead, being observed and the particular action that is observed determine subjects¿ choice. Our results highlight the importance of initial decisions in the emergence of a bank run. In particular, Bayesian analysis reveals that subjects clearly depart from predicted behavior when observing a withdrawal.
Keywords: bank runs; coordination failures; experimental evidence; networks (search for similar items in EconPapers)
JEL-codes: C70 C90 D85 G21 (search for similar items in EconPapers)
Pages: 26 pages
New Economics Papers: this item is included in nep-ban, nep-exp, nep-gth, nep-mic, nep-net and nep-soc
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Working Paper: Do Social Networks Prevent Bank Runs? (2012)
Working Paper: Do Social Networks Prevent Bank Runs? (2010)
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