Banks are known for having elaborate buildings and expensive interiors. How can economics explain this phenomenon?
A)this is an investment in sunk costs to overcome a symmetric information
B)banks are heavily subsidized by the government
C)banks have low marginal costs and invest in fixed assets to reduce taxes
D)banks are generally large and have many shareholders none of whom have an incentive to monitor management

Question

Quizplus · Accepted Answer

The elaborate buildings and expensive interiors of banks serve as a form of signal to customers that the bank is financially stable and trustworthy, and can be relied upon to safely hold and manage their money. This is particularly important in the banking industry, where asymmetric information problems can arise, and customers may have limited knowledge or ability to evaluate the financial health of a particular bank. Investing in sunk costs like buildings and interiors helps to create a reputation for the bank that can offset these information problems and attract customers.

Banks Are Known for Having Elaborate Buildings and Expensive Interiors