We report experimental evidence on the effect of observability of actions on bank runs. We model depositors' decision-making in a sequential framework, with three depositors located at the nodes of a network. Depositors observe the other depositors' actions only if connected by the network. Theoretically, a sufficient condition to prevent bank runs is that the second depositor to act is able to observe the first one's action (no matter what is observed). Experimentally, we find that observability of actions affects the likelihood of bank runs, but depositors' choice is highly influenced by the particular action that is being observed. Depositors who are observed by others at the beginning of the line are more likely to keep their money deposited, leading to less bank runs. When withdrawals are observed, bank runs are more likely even when the mere observation of actions should prevent them.Keywords: bank runs, social networks, coordination failures, experimental evidence. JEL Classification: C70, C91; D80; D85; G21We are indebted to Luis Moreno-Garrido for his contribution to the experimental design and to Coralio Ballester, Todd Keister, Raúl López, Giovanni Ponti, Miguel Sánchez-Villalba and Adam Sanjurjo for useful comments. We would also like to thank Ivan Arribas and Lola Collado for helpful advices in the econometric analysis. Finally, this paper has benefitted from suggestions provided by the anonymous reviewers, seminar and conference participants at
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.