Sequential Search and Learning from Rank Feedback: Theory and Experimental Evidence

Management Science 60 (10), 2525-2542

Posted: 22 Jul 2013 Last revised: 20 Sep 2015

See all articles by Asa Palley

Asa Palley

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies

Mirko Kremer

Pennsylvania State University

Date Written: January 2, 2014

Abstract

This paper studies the effect of limited information in a sequential search setting where a single selection is to be made from a set of random potential options. We consider both a full-information problem, where the decision maker observes the exact value of each option as she searches, and a partial-information problem, in which the decision maker only learns the rank of the current option relative to the options that have already been observed. We develop a model which allows for a sharp contrast between search behavior in the two information settings, both theoretically and empirically. We present the results of an experiment that tests, and supports, the key prediction of our model analysis – limited information induces longer search. Our data further suggest systematic deviations from the theoretical benchmarks in both informational settings. Importantly, subjects in our partial-information conditions are prone to stop prematurely during early stages of the search process and to sub-optimally continue the search during late stages. We propose a simple model that succinctly captures the interplay of two symmetric choice and judgment biases that have asymmetric (but opposing) effects on the length of search.

Keywords: Sequential Search, Optimal Stopping, Behavioral Decision Making, Secretary Problem

JEL Classification: D83, C91

Suggested Citation

Palley, Asa and Kremer, Mirko, Sequential Search and Learning from Rank Feedback: Theory and Experimental Evidence (January 2, 2014). Management Science 60 (10), 2525-2542, Available at SSRN: https://ssrn.com/abstract=2296414 or http://dx.doi.org/10.2139/ssrn.2296414

Asa Palley (Contact Author)

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies ( email )

Hodge Hall 4100
1275 E 10th St.
Bloomington, IN 47405
United States

Mirko Kremer

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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