Think twice before running! Bank runs and cognitive abilities

Kiss, Hubert Janos and Rodriguez-Lara, Ismael and Rosa-García, Alfonso (2016) Think twice before running! Bank runs and cognitive abilities. Journal of Behavioral and Experimental Economics, 64 . pp. 12-19. ISSN 2214-8043

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Abstract

We assess the effect of cognitive abilities on withdrawal decisions in a bank-run game. In our setup, depositors choose sequentially between withdrawing or keeping their funds deposited in a common bank. Depositors may observe previous decisions depending on the information structure. Theoretically, the last depositor in the sequence of decisions has a dominant strategy and should always keep the funds deposited, regardless of what she observes (if anything). Recognizing the dominant strategy, however, is not always straightforward. If there exists strategic uncertainty (e.g., if the last depositor has no information regarding the decisions of predecessors), then the identification of the dominant strategy is more difficult than in a situation with no strategic uncertainty (e.g., the last depositor is informed about all previous decisions). We find that cognitive abilities, as measured by the Cognitive Reflection Test (CRT), predict withdrawals in the presence of strategic uncertainty (participants with stronger abilities tend to iden- tify the dominant strategy more easily) but that the CRT does not predict behavior when strategic uncertainty is absent (JEL Class.: C91, D03, D8, G02, J16)

Item Type: Article
Additional Information: Available online 3 February 2015
Research Areas: A. > Business School > Economics
Item ID: 14517
Useful Links:
Depositing User: Ismael Rodriguez-Lara
Date Deposited: 27 Mar 2015 13:19
Last Modified: 11 Aug 2017 14:26
URI: http://eprints.mdx.ac.uk/id/eprint/14517

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