The Teller Line

The situation

You own a dry-goods store in a mid-sized American city in October 1907. Your working capital and your family's savings sit in the local trust company. This morning your bookkeeper returns from the post office with a rumor: the trust's president is entangled in a failed copper speculation in New York, and depositors there are pulling their money. By noon there is a line outside your own trust company's doors. The people in it do not look panicked. They look like you: merchants and clerks who can do arithmetic. There is no deposit insurance. If the trust fails, the money is simply gone, and the people at the front of the line will be the ones who kept theirs.

Background

In the Panic of 1907, runs that began with a failed speculation spread through New York's trust companies and out into the country, and were stopped only when private actors led by J. P. Morgan pooled reserves and made the backstop visible. Decades later, the waves of failures in the early 1930s led Congress to create federal deposit insurance. Economists Douglas Diamond and Philip Dybvig later formalized what 1907 depositors knew in their bones: a run can be rational for every individual even when the bank is sound, because each depositor's best move depends on what the others do.

What this reveals

The battlefield is the shared belief

Nothing about the bank's actual assets has to change for it to live or die: the same institution survives if depositors expect calm and fails if they expect a run. Runs are equilibria, not verdicts. That is why the effective interventions in 1907 and 1933 targeted expectations, with visible pooled reserves and then federal insurance.

How to counter it: In any fragile coordination situation, ask what would credibly change everyone's expectation of everyone else, and aim your effort there rather than at the fundamentals alone.

A question to sit with

Where in your world could a rumor alone destroy something sound, and what visible commitment would delete that possibility?

Frequently asked questions

What game theory concept does The Teller Line illustrate?

The Teller Line illustrates Coordination, Stag Hunt. A bank run is a coordination game with two self-fulfilling equilibria, and what saves or destroys the bank is what depositors believe other depositors will do.

What is the situation in The Teller Line?

You own a dry-goods store in a mid-sized American city in October 1907. Your working capital and your family's savings sit in the local trust company. This morning your bookkeeper returns from the post office with a rumor: the trust's president is entangled in a failed copper speculation in New York, and depositors there are pulling their money.

What does The Teller Line reveal about how people decide?

The battlefield is the shared belief. Nothing about the bank's actual assets has to change for it to live or die: the same institution survives if depositors expect calm and fails if they expect a run. Runs are equilibria, not verdicts. That is why the effective interventions in 1907 and 1933 targeted expectations, with visible pooled reserves and then federal insurance.

How do you avoid the trap in The Teller Line?

In any fragile coordination situation, ask what would credibly change everyone's expectation of everyone else, and aim your effort there rather than at the fundamentals alone.

What is the research behind The Teller Line?

In the Panic of 1907, runs that began with a failed speculation spread through New York's trust companies and out into the country, and were stopped only when private actors led by J. P. Morgan pooled reserves and made the backstop visible.

How long does The Teller Line take to play?

About 6 min, at intro difficulty, across 3 decision points. It runs in your browser with no account and no sign-in.

Keep exploring

More Historical Perspective scenarios, or browse all scenarios. New to this? Start with how DecisionPlay works or the game theory glossary.

Topics: bank-runs, coordination, multiple-equilibria, panic-of-1907