Schrödinger's Bank

A theoretical essay that uses the metaphor of quantum superposition to model self-fulfilling bank panics.

It argues that, before depositors act, a bank can sit simultaneously in a 'solvent' and 'insolvent' state —a superposition— that collapses only when collective expectations and decisions 'measure' the system, precipitating or averting the run. The paper connects the multiple-equilibria and self-fulfilling-prophecy strands of the finance literature with an analogy from quantum mechanics to illuminate why confidence is itself a fundamental of the system.

Read the full paper on SSRN.