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Good News and Bad News: Search from Unknown Wage Offer Distributions

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  • James Cox
  • Ronald Oaxaca

Abstract

The largest market in national economies is the labor market. Labor market contracting is characterized by job search, often from unknown wage offer distributions. This paper reports experimental tests of finite horizon models of job search in which the wage offer distribution is unknown. Theoretically-optimal search from an unknown wage offer distribution can have the seemingly paradoxical property that some offers will be accepted that are lower than other offers that will be rejected in the same period of the search horizon. Thus the reservation wage property (or lowest acceptable wage path) may not exist. This can occur because an offer that is a priori relatively high (“good newsâ€) can imply that it is highly probable that search is from a favorable distribution, and such an offer can look unattractive when it is an a posteriori relatively low offer from a favorable distribution (“bad newsâ€). This paper reports results from experimental treatments for search from unknown distributions in which the reservation wage property does exist and treatments in which it does not exist. We find that the consistency of search behavior with search theory reported in earlier papers is robust to the presence or absence of the reservation wage property and to whether the draws come from known or unknown distributions. Copyright Kluwer Academic Publishers 2000

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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 2 (2000)
Issue (Month): 3 (March)
Pages: 197-225

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Handle: RePEc:kap:expeco:v:2:y:2000:i:3:p:197-225

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: job search; unknown distributions; reservation wage property; controlled experiments;

References

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  1. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 19(1), pages 1-25, January.
  2. Cox, James C & Oaxaca, Ronald L, 1989. " Laboratory Experiments with a Finite-Horizon Job-Search Model," Journal of Risk and Uncertainty, Springer, Springer, vol. 2(3), pages 301-29, September.
  3. Hey, John D., 1982. "Search for rules for search," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 65-81, March.
  4. Grether, David M & Schwartz, Alan & Wilde, Louis L, 1988. "Uncertainty and Shopping Behaviour: An Experimental Analysis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(2), pages 323-42, April.
  5. Kogut, Carl A., 1992. "Recall in consumer search," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 141-151, January.
  6. Cox, James C & Oaxaca, Ronald L, 1992. "Direct Tests of the Reservation Wage Property," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(415), pages 1423-32, November.
  7. Braunstein, Yale M & Schotter, Andrew, 1982. "Labor Market Search: An Experimental Study," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 20(1), pages 133-44, January.
  8. Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(401), pages 478-86, June.
  9. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195059366, October.
  10. Hey, John D., 1987. "Still searching," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 137-144, March.
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Citations

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Cited by:
  1. James C. Cox & Daniel Friedman & Steven Gjerstad, 2006. "A Tractable Model of Reciprocity and Fairness," Experimental Economics Center Working Paper Series, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University 2006-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  2. Christopher Anderson, 2012. "Ambiguity aversion in multi-armed bandit problems," Theory and Decision, Springer, Springer, vol. 72(1), pages 15-33, January.
  3. Timothy N. Cason & Shakun Datta, 2008. "Costly Buyer Search in Laboratory Markets with Seller Advertising," Purdue University Economics Working Papers 1212, Purdue University, Department of Economics.
  4. Oprea, Ryan & Friedman, Daniel & Anderson, Steven T, 2007. "A Laboratory Investigation of Deferral Options," Santa Cruz Department of Economics, Working Paper Series qt15t887m9, Department of Economics, UC Santa Cruz.
  5. Paul Viefers & Philipp Strack, 2014. "Too Proud to Stop: Regret in Dynamic Decisions," Discussion Papers of DIW Berlin 1401, DIW Berlin, German Institute for Economic Research.
  6. Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.
  7. Paul Viefers, 2012. "Should I Stay or Should I Go?: A Laboratory Analysis of Investment Opportunities under Ambiguity," Discussion Papers of DIW Berlin 1228, DIW Berlin, German Institute for Economic Research.
  8. Eckel, Catherine & Gintis, Herbert, 2010. "Blaming the messenger: Notes on the current state of experimental economics," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 109-119, January.
  9. Feri, Francesco & Gantner, Anita, 2011. "Bargaining or searching for a better price? - An experimental study," Games and Economic Behavior, Elsevier, vol. 72(2), pages 376-399, June.

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