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An Experimental Test of the No Safety Schools Theorem

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Abstract

In simultaneous search problems individuals choose a portfolio of risky options from a larger menu of options with utility determined by the portfolio’s option with the best ex-post outcome. Chade and Smith (2006) examine simultaneous search problems and show that the optimal portfolio includes the utility maximizing option and others that are riskier. However, Pallais (2015) shows that when individuals apply to more colleges, their decisions are inconsistent with theoretical predictions. We replicate this ?nding experimentally and show that subjects select similar portfolios when the payo?s are independent, suggesting subjects ignore the rival nature of the options.

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  • David B. Johnson & Matthew D. Webb, 2017. "An Experimental Test of the No Safety Schools Theorem," Carleton Economic Papers 17-10, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:17-10
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    1. Mullinix, Kevin J. & Leeper, Thomas J. & Druckman, James N. & Freese, Jeremy, 2015. "The Generalizability of Survey Experiments," Journal of Experimental Political Science, Cambridge University Press, vol. 2(2), pages 109-138, January.
    2. Chao Fu, 2014. "Equilibrium Tuition, Applications, Admissions, and Enrollment in the College Market," Journal of Political Economy, University of Chicago Press, vol. 122(2), pages 225-281.
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    4. Lönnqvist, Jan-Erik & Verkasalo, Markku & Walkowitz, Gari & Wichardt, Philipp C., 2015. "Measuring individual risk attitudes in the lab: Task or ask? An empirical comparison," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 254-266.
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    7. Scott Carrell & Bruce Sacerdote, 2017. "Why Do College-Going Interventions Work?," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 124-151, July.
    8. Jan-Erik Lönnqvist & Markku Verkasalo & Gari Walkowitz & Philipp C. Wichardt, 2011. "Measuring Individual Risk Attitudes in the Lab: Task or Ask?: An Empirical Comparison," SOEPpapers on Multidisciplinary Panel Data Research 370, DIW Berlin, The German Socio-Economic Panel (SOEP).
    9. Arun G. Chandrasekhar & Horacio Larreguy & Juan Pablo Xandri, 2015. "Testing Models of Social Learning on Networks: Evidence from a Lab Experiment in the Field," NBER Working Papers 21468, National Bureau of Economic Research, Inc.
    10. Caroline Hoxby & Christopher Avery, 2013. "The Missing "One-Offs": The Hidden Supply of High-Achieving, Low-Income Students," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 1-65.
    11. Erik Eyster & Georg Weizsäcker, 2011. "Correlation Neglect in Financial Decision-Making," Discussion Papers of DIW Berlin 1104, DIW Berlin, German Institute for Economic Research.
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    Keywords

    Decision Making; Simultaneous Search; Correlation Neglect; Online Experiment; College Application;
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