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Adverse and Advantageous Selection in the Laboratory

Author

Listed:
  • S. Nageeb Ali
  • Maximilian Mihm
  • Lucas Siga
  • Chloe Tergiman

Abstract

We study two-player games where one-sided asymmetric information can lead to either adverse or advantageous selection. We contrast behavior in these games with settings where both players are uninformed. We find stark differences, suggesting that subjects do account for endogenous selection effects. Removing strategic uncertainty increases the fraction of subjects who account for selection. Subjects respond more to adverse than advantageous selection. Using additional treatments where we vary payoff feedback, we connect this difference to learning. We also observe a significant fraction of subjects who appear to understand selection effects but do not apply that knowledge.

Suggested Citation

  • S. Nageeb Ali & Maximilian Mihm & Lucas Siga & Chloe Tergiman, 2021. "Adverse and Advantageous Selection in the Laboratory," American Economic Review, American Economic Association, vol. 111(7), pages 2152-2178, July.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:7:p:2152-78
    DOI: 10.1257/aer.20200304
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    Citations

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    Cited by:

    1. Evan M. Calford & Timothy N. Cason, 2021. "Contingent Reasoning and Dynamic Public Goods Provision," ANU Working Papers in Economics and Econometrics 2021-679, Australian National University, College of Business and Economics, School of Economics.
    2. Chiara Aina & Andrea Amelio & Katharina Brütt, 2023. "Contingent Belief Updating," ECONtribute Discussion Papers Series 263, University of Bonn and University of Cologne, Germany.
    3. Brocas, Isabelle & Carrillo, Juan D., 2022. "Adverse selection and contingent reasoning in preadolescents and teenagers," Games and Economic Behavior, Elsevier, vol. 133(C), pages 331-351.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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