Do social networks prevent or promote bank runs?
Kiss, Hubert Janos and Rodriguez-Lara, Ismael and Rosa-García, Alfonso (2014) Do social networks prevent or promote bank runs? Journal of Economic Behavior and Organization, 101 . pp. 87-99. ISSN 0167-2681
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We report experimental evidence on the effect of observability of actions on bank runs. We model depositors’ decision-making in a sequential framework, with three depositors located at the nodes of a network. Depositors observe the other depositors’ actions only if connected by the network. Theoretically, a sufficient condition to prevent bank runs is that the second depositor to act is able to observe the first one's action (no matter what is observed). Experimentally, we find that observability of actions affects the likelihood of bank runs, but depositors’ choice is highly influenced by the particular action that is being observed. Depositors who are observed by others at the beginning of the line are more likely to keep their money deposited, leading to less bank runs. When withdrawals are observed, bank runs are more likely even when the mere observation of actions should prevent them.
|Additional Information:||Available online 22 February 2014|
|Research Areas:||A. > Business School > Economics
A. > Business School > Economics > Behavioural Economics group
|Notes on copyright:||From SHERPA/RoMEo : Author's post-print on open access repository after an embargo period of 36 months.|
|Depositing User:||Ismael Rodriguez-Lara|
|Date Deposited:||09 Jun 2015 09:56|
|Last Modified:||13 Oct 2016 14:35|
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