Loss Aversion Theory and the Collapse of SVB

On March 10th, there was a run on Silicon Valley Bank. Days of concerning news and regulatory filings from the bank caused depositors to panic and withdraw their cash. 

The bank had already been sitting on a gap - a $17B variance between the paper value of their bonds and their market value. When $42 Billion was withdrawn in a very short period of time, it was a “death blow” as characterized by Hugh Son, a banking reporter at CNBC.

Although concerns weren’t raised publicly more than a couple of days prior to the run, all of the signs were there. Could the response to this risky situation be just as much a matter of psychology as mismanagement?

In this episode of Dial P, host Kelly Barner covers:

• What loss aversion theory is and how it relates to risk aversion
• How loss averse decision making can quickly pervade a company’s culture
• Innately human responses that are hardwired into all our thinking and dictate our decision making in stressful situations