Understanding Financial Crises: The Contribution of Experimental Economics

Several phases of financial crises contain strategic elements than can be directly tested by laboratory experiments. This paper summarizes what we can learn from experiments on the formation of bubbles, on herding behavior, bank runs, and on the effects of providing public information in environments with strategic complementarities. I will put a special emphasis on coordination games that are widely used to model bank runs, government debt crises, and currency crises.

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