Panics and Early Warnings

PBCSF-NIFR Research Paper

Posted: 11 Mar 2020 Last revised: 9 Apr 2023

See all articles by Deepal Basak

Deepal Basak

Kelley School of Business, Indiana University

Zhen Zhou

Tsinghua University - PBC School of Finance

Date Written: September 15, 2022


This paper studies dynamic persuasion under adversarial selection in regime change games where the agents choose when to attack, and delay is costly. We construct a simple optimal disclosure policy called “timely disaster alert,” which promptly warns agents about the impending crisis. This policy induces perfect coordination on the right course of action --- the unique rationalizable strategy is to wait for and follow the alert, regardless of private signals. Thus, the optimal policy eliminates panic in the robust sense. We relate this optimal policy to practical early warning systems, such as forward-looking bank stress tests and debt sustainability analysis.

Keywords: Dynamic Information Design, Dynamic Coordination, Robust Design, First-mover Advantage, Regime Change, Early Warning, Panic

JEL Classification: D02, D82, D83, G28

Suggested Citation

Basak, Deepal and Zhou, Zhen, Panics and Early Warnings (September 15, 2022). PBCSF-NIFR Research Paper, Available at SSRN: or

Deepal Basak

Kelley School of Business, Indiana University ( email )

1309 E 10th St
Bloomington, IN 47405-1701
United States

HOME PAGE: http://

Zhen Zhou (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics