5 ms·

How is withdrawing your cash before everyone else withdraws their cash irrational? It's the Nash equilibrium.

by everydayentropy 4y ago

mertd 4y ago
After a large concert ends, would you say everyone stampeding to the exits is the rational behavior?
- ccn0p 4y ago
  Yes if there's a material chance that the last third of folks at the concert get torched in a fire.
- PKop 4y ago
  The bank failed. How could you possibly argue that withdrawing wasn't rational?
  - mertd 4y ago
    That isn't the case. To continue the concert analogy, the concert hall had more than enough doors to let everyone out if people left in their usual walking pace, but some doors were locked and the security was paying someone to unlock them. People took this as a sign that they should sprint to the gates.
    - PKop 4y ago
      The bank has failed and those with deposits in excess of 250k have not been guaranteed and cannot withdraw now what are you talking about? The bank failed!! lol. If one had withdrawn fast enough, they have their money; those who waited lost. The analogy is, it doesn't matter, those who didn't leave quickly got stampeded and died. Anyone who had huge amounts of cash in excess of the FDIC limit sitting there is an idiot. Doubly so if they heard of the "run" and did nothing. As long as Fed has rates way way above 0% checking accounts, the gravity is going to pull deposits out of banks and into US Treasuries. I've been withdrawing personal and business account cash for months and rolling in short term treasuries, many others are too as commercial bank deposits have been declining at record pace this year. Now this bank run. Anyone over the FDIC limit + those who begin to notice the interest rate differential (so..safety plus excess returns) are going to be incentivized to pull money out. This might not be the last bank failure... even if technically there is not danger on paper, human psychology will probably dictate that more will withdraw. The rational choice is clear in this situation: anyone with excess deposits should move quickly. Who cares if nothing else breaks? Better to do it and not need to, than to need to but not do it.
      - mertd 4y ago
        Sorry but that's not correct. SVB is dead but solvent. People will eventually get their money back.
        PKop 4y ago
        "Eventually" You are just plain wrong that withdrawing was the wrong choice. What about those needing to make payroll or pay other expenses in the mean time? When will they get their money back? You have no idea lol The bank failed. It has been closed. It was a bank failure. Here's the official source that calls it a "failed bank" [0] [0] https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...
        mertd 4y ago
        Please calm down with the FUD. We both agree its dead. This doesn't mean its assets vanished. It will be liquidated and the proceeds will be returned to the creditors (deposit holders). The assets are sufficient to make the depositors whole.
      - parasubvert 4y ago
        You completely misunderstand the situation. The bank failed because of the bank run. It’s unlikely any depositors are going to lose their money because the bank was not insolvent. They’re going to get 50-60% of their deposits by Monday or Tuesday.
        PKop 4y ago
        *OBVIOUSLY* the bank failed because of the bank run. What the hell does that have to do with the pertinent question of: was it rational to withdraw? Those that panicked first won. Those that didn't lost.
        parasubvert 4y ago
        Won? Lost? Are you 12 years old? A bank run is a self fulfilling prophecy driven by irrational fear. It is, by definition, irrational. It also doesn’t happen much any more because most banks aren’t susceptible to them (ie. have 90%+ deposits uninsured).
brunooo 4y ago
It is, but if that’s how you apply it to your partner who built 4 decades worth of plumbing that underpins your community, then stuff falls apart.
mrcode007 4y ago
Nash Equilibrium has nothing to do with efficiency. In fact Prisoner’s Dilemma is the game you’re playing here and the equilibrium is NOT Pareto efficient at all
ummonk 4y ago
It's not the only Nash equilibrium. The other Nash equilibrium is that everyone keeps their money in SVB. That would have also been the Pareto optimal Nash equilibrium. The fact that VCs settled on the suboptimal Nash equilibrium actually reflects poorly on them as a community.
- deleted 4y ago
  [deleted]
- hatsunearu 4y ago
  I don't see how keeping the money in SVB is another equilibrium; the payout matrix seems exactly like the prisoner's dilemma.
  - mrcode007 4y ago
    An INDIVIDUAL payoff. Not the global one. By your argument, nothing stops the nuclear powers from destroying themselves. Yet somehow in the 60s the nuclear powers figured out the mutually assured destruction is also a prisoner’s dilemma and they COOPERATE despite the individual payoff being greater.
  - ummonk 4y ago
    No, because if everyone else keeps their money in SVB and it avoids going under, there is no payoff for defecting - you simply disrupt your own operations for no reason by trying to switch banks.
- bostik 4y ago
  It's not an accident that the "V" is often read as "vulture". The only way to prevent someone from stabbing you in the back is to stab them first. People often equate finance to gambling, because even the terminologies overlap: you don't make "risky investments", you "place bets". But that's too simplistic a take, because there are two MAJOR differences between finance and gambling. 1: In finance you gamble with other peoples' money. Not your own. And when your bets go the wrong way, you ruin lives of thousands of families. Not just your own. 2: If you manage to find a loophole and turn the letter of a contract against the spirit of the contract, in finance that's a cause for celebration and a big bonus. ("Well played.") In gambling, that's called a breach of regulations. Both are amoral, highly utilitarian ecosystems.

How is withdrawing your cash before everyone else withdraws their cash irrational? It's the Nash equilibrium.

mertd 4y ago

After a large concert ends, would you say everyone stampeding to the exits is the rational behavior?

ccn0p 4y ago
Yes if there's a material chance that the last third of folks at the concert get torched in a fire.
PKop 4y ago
The bank failed. How could you possibly argue that withdrawing wasn't rational?
- mertd 4y ago
  That isn't the case. To continue the concert analogy, the concert hall had more than enough doors to let everyone out if people left in their usual walking pace, but some doors were locked and the security was paying someone to unlock them. People took this as a sign that they should sprint to the gates.
  - PKop 4y ago
    The bank has failed and those with deposits in excess of 250k have not been guaranteed and cannot withdraw now what are you talking about? The bank failed!! lol. If one had withdrawn fast enough, they have their money; those who waited lost. The analogy is, it doesn't matter, those who didn't leave quickly got stampeded and died. Anyone who had huge amounts of cash in excess of the FDIC limit sitting there is an idiot. Doubly so if they heard of the "run" and did nothing. As long as Fed has rates way way above 0% checking accounts, the gravity is going to pull deposits out of banks and into US Treasuries. I've been withdrawing personal and business account cash for months and rolling in short term treasuries, many others are too as commercial bank deposits have been declining at record pace this year. Now this bank run. Anyone over the FDIC limit + those who begin to notice the interest rate differential (so..safety plus excess returns) are going to be incentivized to pull money out. This might not be the last bank failure... even if technically there is not danger on paper, human psychology will probably dictate that more will withdraw. The rational choice is clear in this situation: anyone with excess deposits should move quickly. Who cares if nothing else breaks? Better to do it and not need to, than to need to but not do it.
    - mertd 4y ago
      Sorry but that's not correct. SVB is dead but solvent. People will eventually get their money back.
      - PKop 4y ago
        "Eventually" You are just plain wrong that withdrawing was the wrong choice. What about those needing to make payroll or pay other expenses in the mean time? When will they get their money back? You have no idea lol The bank failed. It has been closed. It was a bank failure. Here's the official source that calls it a "failed bank" [0] [0] https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...
        mertd 4y ago
        Please calm down with the FUD. We both agree its dead. This doesn't mean its assets vanished. It will be liquidated and the proceeds will be returned to the creditors (deposit holders). The assets are sufficient to make the depositors whole.
    - parasubvert 4y ago
      You completely misunderstand the situation. The bank failed because of the bank run. It’s unlikely any depositors are going to lose their money because the bank was not insolvent. They’re going to get 50-60% of their deposits by Monday or Tuesday.
      - PKop 4y ago
        *OBVIOUSLY* the bank failed because of the bank run. What the hell does that have to do with the pertinent question of: was it rational to withdraw? Those that panicked first won. Those that didn't lost.
        parasubvert 4y ago
        Won? Lost? Are you 12 years old? A bank run is a self fulfilling prophecy driven by irrational fear. It is, by definition, irrational. It also doesn’t happen much any more because most banks aren’t susceptible to them (ie. have 90%+ deposits uninsured).

brunooo 4y ago

It is, but if that’s how you apply it to your partner who built 4 decades worth of plumbing that underpins your community, then stuff falls apart.

mrcode007 4y ago

Nash Equilibrium has nothing to do with efficiency. In fact Prisoner’s Dilemma is the game you’re playing here and the equilibrium is NOT Pareto efficient at all

ummonk 4y ago

It's not the only Nash equilibrium. The other Nash equilibrium is that everyone keeps their money in SVB. That would have also been the Pareto optimal Nash equilibrium. The fact that VCs settled on the suboptimal Nash equilibrium actually reflects poorly on them as a community.

deleted 4y ago
[deleted]
hatsunearu 4y ago
I don't see how keeping the money in SVB is another equilibrium; the payout matrix seems exactly like the prisoner's dilemma.
- mrcode007 4y ago
  An INDIVIDUAL payoff. Not the global one. By your argument, nothing stops the nuclear powers from destroying themselves. Yet somehow in the 60s the nuclear powers figured out the mutually assured destruction is also a prisoner’s dilemma and they COOPERATE despite the individual payoff being greater.
- ummonk 4y ago
  No, because if everyone else keeps their money in SVB and it avoids going under, there is no payoff for defecting - you simply disrupt your own operations for no reason by trying to switch banks.
bostik 4y ago
It's not an accident that the "V" is often read as "vulture". The only way to prevent someone from stabbing you in the back is to stab them first. People often equate finance to gambling, because even the terminologies overlap: you don't make "risky investments", you "place bets". But that's too simplistic a take, because there are two MAJOR differences between finance and gambling. 1: In finance you gamble with other peoples' money. Not your own. And when your bets go the wrong way, you ruin lives of thousands of families. Not just your own. 2: If you manage to find a loophole and turn the letter of a contract against the spirit of the contract, in finance that's a cause for celebration and a big bonus. ("Well played.") In gambling, that's called a breach of regulations. Both are amoral, highly utilitarian ecosystems.