Testing Bounded Rationality Against Full Rationality in Job Changing Behavior

35 Pages Posted: 28 Nov 2007

See all articles by Bruno Contini

Bruno Contini

University of Turin, Collegio Carlo Alberto, LABORatorio R. Revelli, Centre for Employment Studies, IZA; IZA Institute of Labor Economics

Matteo Morini

University of Turin - Department of Economics and Statistics; Ecole Normale Supérieure (ENS) de Lyon

Date Written: November 2007

Abstract

In this paper we question the hypothesis of full rationality in the context of job changing behaviour, via simple econometric explorations on microdata drawn from WHIP (Worker Histories Italian Panel). Workers' performance is compared at the end of a three-year time window that starts when choices are expressed, under the accepted notion that the main driving forces of job change are future real wages and expected job quality. Bounded rationality suggests that individuals will search for new options capable to attain "satisfactory" targets (aspirations levels, standards, norms), based on conditions prevailing in their own local environments. Our empirical strategy consists of appropriately defining such environments (cells) and observing the ex-post individual performance in relation to the degree of dispersion, clustering and mobility within and between cells. Under full rationality the following are to be expected: high inter-cell mobility, large dispersion around the targets, and clustering in the vicinity of the efficiency frontier. None of the above expectations are confirmed in this exploration. Our conclusion is that workers behave according to principles of rationality that seem distant from those of "full rationality" assumed in the vast majority of contemporary empirical (and theoretical) studies. The idea of "bounded rationality" a la Simon provides a better fit to our observations.

Keywords: bounded rationality, job changes, mobility, testing bounded rationality

JEL Classification: J0, J6, J69

Suggested Citation

Contini, Bruno and Morini, Matteo, Testing Bounded Rationality Against Full Rationality in Job Changing Behavior (November 2007). IZA Discussion Paper No. 3148. Available at SSRN: https://ssrn.com/abstract=1033351

Bruno Contini (Contact Author)

University of Turin, Collegio Carlo Alberto, LABORatorio R. Revelli, Centre for Employment Studies, IZA ( email )

Collegio Carlo Alberto Via Real Collegio
Moncalieri, Turin - Piedmont 10024
Italy
+39 011 840314 (Phone)
+39 011 6702762 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Matteo Morini

University of Turin - Department of Economics and Statistics ( email )

C. so Unione Sovietica, 218 Bis
Torino, 10134
Italy
+39 011 6706186 (Phone)

HOME PAGE: http://www.esomas.unito.it/

Ecole Normale Supérieure (ENS) de Lyon ( email )

15, parvis Rene Descartes BP 7000
Lyon Cedex 07, 69342
France

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