Panic Bank Runs
8 Pages Posted: 3 Apr 2017
Date Written: April 1, 2017
We provide experimental evidence that panic bank runs occur in the absence of problems with fundamentals and coordination failures among depositors, the two main culprits identified in the literature. Depositors withdraw when they observe that others do so, even when theoretically they should not. Our findings suggest that panic also manifests itself in the beliefs of depositors, who overestimate the probability that a bank run is underway. Loss-aversion has a predictive power on panic behavior, while risk or ambiguity aversion do not.
Keywords: bank runs, beliefs, panic, coordination, observability, loss aversion
JEL Classification: C72, D82, G21
Suggested Citation: Suggested Citation