Would Depositors Like to Show Others that They Do Not Withdraw? Theory and Experiment

40 Pages Posted: 26 Oct 2015

See all articles by Markus Kinateder

Markus Kinateder

Universidad de Navarra

Hubert Janos Kiss

Eötvös Loránd University; Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS)

Ágnes Pintér

Universidad Autónoma de Madrid

Date Written: October 26, 2015

Abstract

There is an asymmetry regarding what previous decisions depositors may observe when choosing whether to withdraw or keep the money deposited: it is more likely that withdrawals are observed. We study how decision-making changes if depositors are able to make their decision to keep their funds in the bank visible to subsequent depositors at a cost. We show theoretically in a Diamond-Dybvig setup that without this signaling option multiple equilibria are possible, while signaling makes the no-run outcome the unique equilibrium. We test if the theoretical predictions hold in a lab experiment. We find that indeed when signaling is available, bank runs are less likely to arise and signaling is extensively used.

Keywords: bank runs, asymmetric information, experimental evidence, signaling

JEL Classification: C72, C91, D80, G21

Suggested Citation

Kinateder, Markus and Kiss, Hubert Janos and Pintér, Ágnes, Would Depositors Like to Show Others that They Do Not Withdraw? Theory and Experiment (October 26, 2015). Available at SSRN: https://ssrn.com/abstract=2680152 or http://dx.doi.org/10.2139/ssrn.2680152

Markus Kinateder

Universidad de Navarra ( email )

Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain

Hubert Janos Kiss (Contact Author)

Eötvös Loránd University ( email )

Pazmany Peter setany 1A
Budapest, -- H1117
Hungary

Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS) ( email )

Budaorsi ut 45
Budapest, 1112
Hungary

Ágnes Pintér

Universidad Autónoma de Madrid

Campus Cantoblanco
C/Kelsen, 1
Madrid, Madrid 28049
Spain

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