Greed, Fear, and Rushes

Abstract

We develop a simple new timing game that offers a unified theor y of sudden mass movements in economics, such as arise in matching, asset bubbles, and bank runs. We distinguish between rushes precipitated by greed and fear — i.e., the hunger for greater rewards from outlasting others, and the fear of missing out on early rewards. In our continuum player game, a payoff-relevant fundamental first “ripens”, peaks at a “harvest time”, and then “rots”. Payoffs are also scaled by a single-peaked quantile rank reward. Three local timing games arise in equilibrium: a war of attrition, a slow pre-emption game, and a pre-emptive rush. Our theory explains why matching rushes and bank runs happen inefficiently early, and asset sales rushes occur lat e. For with greed, the harvest time precedes an accelerating war of attrition ending in a rush, whereas with fear, an inefficiently early rush precedes a slowing pre-emption game ending at the harvest time. The theory yields consistent predictions for rush size, timing, gradual play timing, duration, and stopping rates. By our theory: (a) asset sales rushes reflect liquidity and relative compensat ion; (b) “unraveling” in matching markets depends on early matching stigma and market thinness; (c) illiquid bank loans yields complete bank runs before incomplete ones.