Proposed Money Market Mutual Fund Regulations: A Game Theory Assessment

This paper presents a game theory analysis of the SEC’s June 2013 proposals for reform of Money Market Funds (MMFs). Game theory is relevant to this policy debate as regulators have depicted investor behavior using terminology of shareholder runs and first mover advantage – a framework classically employed in game models of bank runs. The paper demonstrates that when implemented properly, the Fee and/or Gate alternative would effectively halt and even prevent runs from taking place. However, the alternative of moving to a fluctuating net asset value would neither halt nor prevent a run.