3 ms·
These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer y
by ar9av 4y ago
These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer your money even if there is only a 0.1% chance of failure.
It's just game theory.
The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event.
That's why FDIC Insurance was invented in order to prevent bank runs and is why we have had so few in the hundreds years since it was invented.
The obvious solution is to waive the FDIC insurance caps and probably increase the cost of the insurance to make up for the increased risk of failure.
- notacoward 4y ago> These people acted rationally. > It's just game theory. The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes me want to throw up.
- IG_Semmelweiss 4y agoFailure was a foregone conclusion non matter what time horizon you wanted to apply. The bank had wiped its equity before depositors drew on it. It was a matter of time it failed. Its loan portfolio is impaired. Its startups are burning DDA cash without vc funding. The majority of its capital is locked up on long duration bonds. The bank was bleeding from a thousand cuts. It was put out of misery by a good old run to the head. Eventually some startup was going to try drawing on their checking and it was going to fail. A bank run is just a symptom of the disease (mismanaged bank risk).