Screening Dominance: A Comparison of Noisy Signals
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David Lagziel
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Ehud Lehrer
- American Economic Journal: Microeconomics (Forthcoming)
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 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.
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