We examine a common value dynamic matching environment where adverse selection accrues slowly over time. Theoretical best responses are therefore time varying, and the prior experimental literature suggests that sequential environments might lead to greater understanding of adverse selection in this dynamic setting. However, while a sophisticated minority in our experiment do condition on time and are close to a best response, the majority use a stationary response, even after extended experience. In an environment with persistent uncertainty, our results indicate that sequentiality is insufficient for the large majority of participants to recognize the effects of adverse selection.
Araujo, Felipe A., Stephanie W. Wang, and Alistair J. Wilson.
"The Times They Are A-Changing: Experimenting with Dynamic Adverse Selection."
American Economic Journal: Microeconomics,
Bargaining Theory; Matching Theory
Design of Experiments: Laboratory, Group Behavior
Asymmetric and Private Information; Mechanism Design
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making