This program sets up an investment game in which each
depositor chooses whether or not to withdraw cash from a financial institution.
If withdrawals exceed the bank's cash reserves, the bank fails and earnings for those
who have not withdrawn at that point are diminished.
Those who withdraw prior to a failure will receive their deposits. If the bank does not
fail, those who do not withdraw receive a return payoff that exceeds the initial
deposit. There are both bank-run equilibria and non-bank-run equilibria. The chances of
a bank run can be affected by return parameters, bank cash reserves, and deposit
| || || || || ||The setup is based on a game developed by AJ Bostian and C. Holt for use with "clickers" in larege classes. With multiple banks, the simulation can illustrate how a banking crisis can spread quickly, and how the erosion of confidence is not always easily reversed by structural solutions like limited deposit insurance.|
Vecon Lab - May 19, 2019