An experiment on the causes of bank run contagions

Surajeet Chakravarty, Miguel A. Fonseca, Todd R. Kaplan

Research output: Contribution to journalArticlepeer-review


To understand the mechanisms behind bank run contagions, we conduct bank run experiments in a modified Diamond-Dybvig setup with two banks (Left and Right). The banks' liquidity levels are either linked or independent. Left Bank depositors see their bank's liquidity level before deciding. Right Bank depositors only see Left Bank withdrawals before deciding. We find that Left Bank depositors' actions significantly affect Right Bank depositors' behavior, even when liquidities are independent. Furthermore, a panic may be a one-way street: an increase in Left Bank withdrawals can cause a panic run on the Right Bank, but a decrease does not calm depositors.

Original languageEnglish
Pages (from-to)39-51
Number of pages13
JournalEuropean Economic Review
StatePublished - 1 Nov 2014

Bibliographical note

Publisher Copyright:
© 2014 Elsevier B.V.


  • Bank runs
  • Contagion
  • Experiments
  • Multiple equilibria

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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