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Why our brains are hard-wired for bank runs like those that toppled SVB, Signature

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In this article The panic-induced customer withdrawalsthat implodedSilicon Valley Bank and Signature Bank — and sent shock waves through financial markets and the broader banking system — offer an acute lesson in human psychology.

In this case, an understandable «behavioral bias» led to bad financial outcomes, experts said. «Psychology injects a lot of extra risk into the world,» Harold Shefrin, a behavioral finance expert and finance professor at Santa Clara University. «And we experienced that risk last week — from Silicon Valley Bank and the reactions on the part of its depositors.» Our brains are hard-wired for a bank run.

Humans evolved as social creatures that thrive in groups, said Dan Egan, vice president of behavioral finance and investing at Betterment.

As such, we care a lot about what others think and do. So, we run if we see others running — a handy impulse when it meant life or death for early humans fleeing bears and lions, but which may not make sense in the modern era, Egan said.

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