Do social networks prevent or promote bank runs?

Kiss, Hubert Janos, 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 [Article] (doi:10.1016/j.jebo.2014.01.019)

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Abstract

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.

Item Type:	Article
Research Areas:	A. > Business School > Economics
Item ID:	16921
Notes on copyright:	© 2014. This author's accepted manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Useful Links:	Publisher's T&Cs
Depositing User:	Ismael Rodriguez-Lara
Date Deposited:	09 Jun 2015 09:56
Last Modified:	29 Nov 2022 23:42
URI:	https://eprints.mdx.ac.uk/id/eprint/16921

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