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American Economic Review: Vol. 101 No. 2 (April 2011)

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Real-Time Search in the Laboratory and the Market

Article Citation

Brown, Meta, Christopher J. Flinn, and Andrew Schotter. 2011. "Real-Time Search in the Laboratory and the Market." American Economic Review, 101(2): 948-74.

DOI: 10.1257/aer.101.2.948

Abstract

While widely accepted labor market search models imply a constant reservation wage policy, empirical evidence strongly suggests that reservation wages decline in search duration. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects' reservation wages decline sharply over time. We investigate two hypotheses to explain this decline: 1. Searchers respond to the stock of accruing search costs. 2. Searchers experience non-stationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically. (JEL C91, D83, J64)

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Authors

Brown, Meta (Federal Reserve Bank of New York)
Flinn, Christopher J. (NYU and U Turin)
Schotter, Andrew (NYU)

JEL Classifications

C91: Design of Experiments: Laboratory, Individual
D83: Search; Learning; Information and Knowledge; Communication; Belief
J64: Unemployment: Models, Duration, Incidence, and Job Search


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