Real-Time Search in the Laboratory and the Market

40 Pages Posted: 10 Dec 2009

See all articles by Meta Brown

Meta Brown

Federal Reserve Bank of New York

Christopher J. Flinn

New York University -Leonard N. Stern School of Business - Department of Economics; IZA Institute of Labor Economics

Andrew Schotter

New York University (NYU) - Department of Economics

Date Written: December 1, 2009

Abstract

While widely accepted models of labor market search imply a constant reservation wage policy, the empirical evidence strongly suggests that reservation wages decline in the duration of search. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment that subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects’ reservation wages decline sharply over time. We investigate two hypotheses to explain this decline: 1) searchers respond to the stock of accruing search costs, and 2) searchers experience nonstationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically.

Keywords: job search, consumer search, reservation wage, experiment

JEL Classification: C91, J64

Suggested Citation

Brown, Meta and Flinn, Christopher J. and Schotter, Andrew, Real-Time Search in the Laboratory and the Market (December 1, 2009). FRB of New York Staff Report No. 410. Available at SSRN: https://ssrn.com/abstract=1521112 or http://dx.doi.org/10.2139/ssrn.1521112

Meta Brown (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Christopher J. Flinn

New York University -Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

IZA Institute of Labor Economics

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

Andrew Schotter

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-998-8909 (Phone)
212-995-4186 (Fax)

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