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The effect of coarse reasoning on a search and matching market with transferable utility

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  • Andersson, Ludvig

Abstract

This paper studies a frictional search and matching market with transferable utility while relaxing the assumption of rational expectations. This is done by introducing bounded rationality in the form of analogy-based expectations equilibrium. I find that boundedly rational agents underestimate their prospects on the market. Consequently, they become impatient and willing to accept a larger set of matches. The resulting equilibrium outcome is characterized by greater mismatch than that with rational expectations. The effect of analogy-based expectations on equilibrium strategies is similar to the effect of search frictions. Hence, reducing the search frictions may dampen the negative effect induced by bounded rationality.

Suggested Citation

  • Andersson, Ludvig, 2025. "The effect of coarse reasoning on a search and matching market with transferable utility," Journal of Economic Behavior & Organization, Elsevier, vol. 240(C).
    • Handle: RePEc:eee:jeborg:v:240:y:2025:i:c:s0167268125004433
    DOI: 10.1016/j.jebo.2025.107326
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    References listed on IDEAS

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