Who Opts In? Selection and Disappointment through Participation Payments
103 Pages Posted: 17 Apr 2018 Last revised: 29 Oct 2022
Date Written: August 19, 2022
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: Suggested Citation