Connectionist agent-based learning in bank-run decision making

• Main Authors: Huang, Weihong, Huang, Qiao
• Other Authors: School of Social Sciences
• Format: Article
• Language: English
• Published: 2019
• Subjects: Artificial Intelligence; DRNTU::Social sciences::Economic development; Stochastic Processes
• Online Access: https://hdl.handle.net/10356/106557; http://hdl.handle.net/10220/48942; http://dx.doi.org/10.1063/1.5022222
• Institution: Nanyang Technological University

It is of utter importance for the policy makers, bankers, and investors to thoroughly understand the probability of bank-run (PBR) which was often neglected in the classical models. Bank-run is not merely due to miscoordination (Diamond and Dybvig, 1983) or deterioration of bank assets (Allen and Gale, 1998) but various factors. This paper presents the simulation results of the nonlinear dynamic probabilities of bank runs based on the global games approach, with the distinct assumption that heterogenous agents hold highly correlated but unidentical beliefs about the true payoffs. The specific technique used in the simulation is to let agents have an integrated cognitive-affective network. It is observed that, even when the economy is good, agents are significantly affected by the cognitive-affective network to react to bad news which might lead to bank-run. Both the rise of the late payoffs, R, and the early payoffs, r, will decrease the effect of the affective process. The increased risk sharing might or might not increase PBR, and the increase in late payoff is beneficial for preventing the bank run. This paper is one of the pioneers that links agent-based computational economics and behavioral economics.