Retesting the Institutional Memory Hypothesis: An Experimental Study

  • Dmitry Burakov Financial University under the Government of Russian Federation, Department of Financial Markets & Banking, Russia

Abstract

In this article, we set ourselves a task to test institutional memory hypothesis as a core of endogenous credit cycles. According to this hypothesis, risks taken by creditors depend largely on availability heuristic and experience of loan officers. To assess validity of this hypothesis we construct and estimate a simple VAR model. The data for this model is acquired from results of an experimental study (lasted for 70 rounds), the purpose of which is to identify behavioral patterns of participants while meeting demand for credit, specifics of subjectively weighted assessment of credit risk, based on shock approach. The results of the study allow confirming institutional memory hypothesis. After initial shock of bad debts, number of periods to recover willingness to accept risk has increased by 39%, which supports the hypothesis of availability heuristic’s influence. However, with improvement of loan portfolio’s quality, willingness to take risk is restoring. In addition, we managed to confirm existence of risk’s underestimation and overestimation periods in an experimental manner.


Key words: Institutional memory hypothesis, Credit cycle, Availability heuristic, Credit risk, Bounded rationality. 
JEL: G02, E32, E51.


Ponovo testiranje hipoteze institucionalnog pamćenja: Eksperimentalna studija


U radu postavili smo zadatak da testiramo hipotezu o institucionalnom pamćenju kao jezgru endogenih kreditnih ciklusa. Prema ovoj hipotezi, rizici koje donatori preuzimaju u velikoj meri zavise od heurističke dostupnosti i iskustva kreditnih službenika. Da bismo procenili validnost ove hipoteze, konstruišemo i ocenjujemo jednostavan VAR model. Podaci za ovaj model su nabavljeni iz rezultata eksperimentalne studije (koji je trajao 70 krugova), čija je svrha da se identifikuju obrasci ponašanja učesnika u toku zadovoljenja potražnje za kreditom, specifičnosti subjektivno ponderisane procene kreditnog rizika, zasnovane na pristupu koji se bazira na šokovima. Rezultati studije omogućavaju potvrđivanje hipoteze o institucionalnom pamćenju. Nakon inicijalnog šoka zbog loših dugova, broj perioda za povraćaj volje za prihvatanje rizika povećao se za 39%, što podržava hipotezu o uticaju heurističke raspoloživosti. Međutim, uz poboljšanje kvaliteta kreditnog portfolia, volja za uzimanje rizika je vraćena. Pored toga, uspeli smo da potvrdimo postojanje potcenjivanja i precenjivanja rizika na ekperimentalni način.


Ključne reči: hipoteza institucionalnog pamćenja, kreditni ciklus, heuristička raspoloživost, kreditni rizik, ograničena racionalnost.

How to Cite
Burakov D. (2018). Retesting the Institutional Memory Hypothesis: An Experimental Study. Panoeconomicus, 65(4), 441-458. doi:10.2298/PAN160105003B
Section
Original scientific paper