Self-Confidence and Unraveling in Matching Markets

Marie-Pierre Dargnies, Rustamdjan Hakimov and Dorothea Kübler

EconStor Open Access Articles and Book Chapters, 2019, vol. 65, issue 12, 5603-5618

Abstract: We document experimentally how biased self-assessments affect the outcome of labor markets. In the experiments, we exogenously manipulate the self-confidence of participants in the role of workers regarding their relative performance by employing hard and easy real-effort tasks. Participants in the role of firms can make offers before information about the workers’ performance has been revealed. Such early offers by firms are more often accepted by workers when the real-effort task is hard than when it is easy. We show that the treatment effect works through a shift in beliefs; that is, under-confident agents are more likely to accept early offers than overconfident agents. The experiment identifies a behavioral determinant of unraveling, namely biased self-assessments. The treatment with the hard task entails more unraveling and thereby leads to lower efficiency and less stability, and it shifts payoffs from high- to low-quality firms.This paper was accepted by Uri Gneezy, behavioral economics.

Keywords: market unraveling; labor markets; experiment; self-confidence; firm strategy (search for similar items in EconPapers)
JEL-codes: C92 D47 D83 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Self-Confidence and Unraveling in Matching Markets (2019)
Working Paper: Self-confidence and unraveling in matching markets (2019)
Working Paper: Self-Confidence and Unraveling In Matching Markets (2017)
Working Paper: Self-confidence and unraveling in matching markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:209668

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