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Self-Confidence and Unraveling in Matching Markets
[journal article]
Abstract We document experimentally how biased self-assessments affect the outcome of labor markets. In the experiments, we exogenously manipulate the self-confidence of participants in the role of workers regarding their relative performance by employing hard and easy real-effort tasks. Participants in the ... view more
We document experimentally how biased self-assessments affect the outcome of labor markets. In the experiments, we exogenously manipulate the self-confidence of participants in the role of workers regarding their relative performance by employing hard and easy real-effort tasks. Participants in the role of firms can make offers before information about the workers’ performance has been revealed. Such early offers by firms are more often accepted by workers when the real-effort task is hard than when it is easy. We show that the treatment effect works through a shift in beliefs; that is, under-confident agents are more likely to accept early offers than overconfident agents. The experiment identifies a behavioral determinant of unraveling, namely biased self-assessments. The treatment with the hard task entails more unraveling and thereby leads to lower efficiency and less stability, and it shifts payoffs from high- to low-quality firms.... view less
Classification
Political Economy
Free Keywords
experiment; firm strategy; labor markets; market unraveling; self-confidence
Document language
English
Publication Year
2019
Page/Pages
p. 5603-5618
Journal
Management Science, 65 (2019) 12
Handle
https://hdl.handle.net/10419/209668
ISSN
1526-5501
Status
Postprint; peer reviewed
Licence
Deposit Licence - No Redistribution, No Modifications