Framing bank withdrawal incentives as 'losses' rather than 'gains' can actually prevent bank runs from happening.
April 1, 2026
Original Paper
Loss Domain in a Bank Run Context: An Experimental Approach
SSRN · 6505814
The Takeaway
While we usually think the fear of loss is what triggers a panic-driven bank run, this experimental study found that the 'loss domain' actually reduces the probability of a run in uncertain environments. It suggests that the way financial penalties for early withdrawal are phrased can fundamentally change how people coordinate during a crisis.
From the abstract
This study examines whether incentives expressed in the form of losses, in contrast to gains, impact the number of withdrawals in a bank run game with the presence of sunspots. To verify our hypotheses, we conducted a laboratory experiment inspired by a payoff function based on the fundamentals of Arifovic and Jiang (2019). The experiment takes the form of a simultaneous game where subjects make a binary choice: whether to withdraw money from the bank in the first round or wait until the second