Who Opts In? Selection and Disappointment through Participation Payments

103 Pages Posted: 17 Apr 2018 Last revised: 26 Feb 2022

See all articles by Sandro Ambuehl

Sandro Ambuehl

University of Zurich - Department of Economics

Axel Ockenfels

University of Cologne - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Colin Stewart

University of Toronto - Department of Economics

Date Written: May 20, 2020

Abstract

Participation payments are used in many transactions about which people know little, but can learn more: incentives for medical trial participation, signing bonuses for job applicants, or price rebates on consumer durables. Who opts into the transaction when given such incentives? We show theoretically and experimentally that incentives can act as a selection mechanism that disproportionately selects individuals for whom learning is harder. Moreover, these individuals use less information to decide whether to participate, which makes disappointment more likely. The learning-based selection effect is stronger in settings in which information acquisition is more difficult.

Keywords: Rational inattention, incentives, selection, screening, evaluability, repugnant transactions

JEL Classification: D01, D63, D83, D91, C91

Suggested Citation

Ambuehl, Sandro and Ockenfels, Axel and Stewart, Colin, Who Opts In? Selection and Disappointment through Participation Payments (May 20, 2020). Rotman School of Management Working Paper No. 3154197, Available at SSRN: https://ssrn.com/abstract=3154197 or http://dx.doi.org/10.2139/ssrn.3154197

Sandro Ambuehl (Contact Author)

University of Zurich - Department of Economics ( email )

Z├╝rich
Switzerland

HOME PAGE: http://https://sites.google.com/site/sandroambuehl/home

Axel Ockenfels

University of Cologne - Department of Economics ( email )

Albertus Magnus Platz
Cologne 50923
Germany

HOME PAGE: http://ockenfels.uni-koeln.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Colin Stewart

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

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