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Screening Dominance: A Comparison of Noisy Signals

  • David Lagziel
  • Ehud Lehrer
American Economic Journal: Microeconomics
vol. 14, no. 4, November 2022
(pp. 1-24)
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Abstract

This paper studies the impact of noisy signals on screening processes. It deals with a decision problem in which a decision-maker screens a set of elements based on noisy unbiased evaluations. Given that the decision-maker uses threshold strategies, we show that additional binary noise can potentially improve a screening, an effect that resembles a "lucky coin toss." We compare different noisy signals under threshold strategies and optimal ones, and we provide several characterizations of cases in which one noise is preferable over another. Accordingly so, we establish a novel method to compare noise variables using a contraction mapping between percentiles.

Citation

Lagziel, David, and Ehud Lehrer. 2022. "Screening Dominance: A Comparison of Noisy Signals." American Economic Journal: Microeconomics, 14 (4): 1-24. DOI: 10.1257/mic.20200284

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
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