ECONOMIC SEARCH: AN EXPERIMENTAL STUDY

This paper presents results of experiments designed to test several of the hypotheses present in the theoretical literature on “optimal” economic search. First we test whether the subjects (searchers) actually search for wages in ways that are consistent with setting an optimal reservation wage. We then proceed to determine experimentally the effects of risk aversion, increased search costs, changes in risk (brought about by a mean-preserving transformation of the distribution of wage offers), the presence or absence of recall, the existence of a finite horizon, and the searcher's state of knowledge about the underlying distribution of wages. In general, we find that the searchers exhibit behavior that is consistent with that predicted by theory. Differences between risk neutral and risk averse searchers are found, and the responses of both groups to changes in search costs, in the degree of risk, or in the state of knowledge are consistent with theoretical predictions.

[1]  Meir G. Kohn,et al.  The theory of search , 1974 .

[2]  Hirschel Kasper,et al.  The Asking Price of Labor and the Duration of Unemployment , 1967 .

[3]  George J. Stigler,et al.  Information in the Labor Market , 1962, Journal of Political Economy.

[4]  J. Pratt.  RISK AVERSION IN THE SMALL AND IN THE LARGE11This research was supported by the National Science Foundation (grant NSF-G24035). Reproduction in whole or in part is permitted for any purpose of the United States Government. , 1964 .

[5]  Minoru Sakaguchi,et al.  Dynamic programming of some sequential sampling design , 1961 .

[6]  Steven A. Lippman,et al.  The Economics of Job Search: A Survey: Part I , 1976 .

[7]  S. Salop,et al.  Systematic job search and unemployment , 1973 .

[8]  Dale T. Mortensen,et al.  Job Search, the Duration of Unemployment, and the Phillips Curve: Comment , 1972 .

[9]  Edi Karni,et al.  Search theory: The case of search with uncertain recall , 1977 .

[10]  Joseph L. Gastwirth,et al.  On Probabilistic Models of Consumer Search for Information , 1976 .

[11]  M. Rothschild.  Models of Market Organization with Imperfect Information: A Survey , 1973, Journal of Political Economy.

[12]  J. McCall.  Economics of Information and Job Search , 1970 .

[13]  L. Telser,et al.  Searching for the Lowest Price , 1973 .

[14]  S. Lippman,et al.  THE ECONOMICS OF JOB SEARCH: A SURVEY* , 1976 .

[15]  M. Rothschild,et al.  Searching for the Lowest Price When the Distribution of Prices Is Unknown , 1974, Journal of Political Economy.

[16]  John J. McCall,et al.  The Economics of Information and Optimal Stopping Rules , 1965 .

[17]  M. Rothschild,et al.  Increasing risk: I. A definition , 1970 .

[18]  G. Stigler.  The Economics of Information , 1961, Journal of Political Economy.