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Self-Confidence and Unraveling In Matching Markets

Marie-Pierre Dargnies and Dorothea Kübler ()
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Marie-Pierre Dargnies: University of Paris Dauphine

No 5, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We document experimentally how biased self-assessments affect the outcome of matching markets. In the experiments, we exogenously manipulate the self-confidence of participants regarding their relative performance by employing hard and easy real-effort tasks. We give participants the option to accept early offers when information about their performance has not been revealed, or to wait for the assortative matching based on their actual relative performance. Early offers are accepted more often when the task is hard than when it is easy. We show that the treatment effect works through a shift in beliefs, i.e., underconfident agents are more likely to accept early offers than overconfident agents. The experiment identifies a behavioral determinant of unraveling, namely biased self-assessments, which can lead to penalties for underconfident individuals as well as efficiency losses.

Keywords: Market unraveling; experiment; self-confidence; matching markets (search for similar items in EconPapers)
JEL-codes: C92 D47 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-exp
Date: 2017-03-25
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Working Paper: Self-confidence and unraveling in matching markets (2016) Downloads
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