Strategic Uncertainty and the Power of Extrinsic Signals – Evidence from an Experimental Study of Bank Runs

45 Pages Posted: 18 Jul 2019

See all articles by Jasmina Arifovic

Jasmina Arifovic

Simon Fraser University (SFU) - Department of Economics

Janet Jiang

Bank of Canada

Date Written: June 14, 2019

Abstract

We investigate how the level of strategic uncertainty affects the coordination power of publicly observed extrinsic signals in a controlled laboratory environment in the context of a bank-run game. We run three treatments featuring different levels of strategic uncertainty. Although theory predicts that an equilibrium where agents’ choices and economic outcomes follow the realization of the extrinsic signal exists in all treatments, strong responses to the extrinsic signal occur only in the treatment where strategic uncertainty is high.

Keywords: Bank Runs, Extrinsic Signals, Sunspots, Experiment, Financial Crises, Strategic Uncertainty

JEL Classification: C92; E58; G20

Suggested Citation

Arifovic, Jasmina and Jiang, Janet, Strategic Uncertainty and the Power of Extrinsic Signals – Evidence from an Experimental Study of Bank Runs (June 14, 2019). Available at SSRN: https://ssrn.com/abstract=3422197 or http://dx.doi.org/10.2139/ssrn.3422197

Jasmina Arifovic

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3508 (Phone)
604-291-5944 (Fax)

Janet Jiang (Contact Author)

Bank of Canada ( email )

234 Wellington St.
Ottawa, Ontario K1A 0G9
Canada
K1A 0G9 (Fax)

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