The Times They Are A-Changing: Experimenting with Dynamic Adverse Selection
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Abstract
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.Citation
Araujo, Felipe A., Stephanie W. Wang, and Alistair J. Wilson. 2021. "The Times They Are A-Changing: Experimenting with Dynamic Adverse Selection." American Economic Journal: Microeconomics, 13 (4): 1-22. DOI: 10.1257/mic.20190088Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- C92 Design of Experiments: Laboratory, Group Behavior
- D82 Asymmetric and Private Information; Mechanism Design
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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