Who Opts In?
91 Pages Posted: 17 Apr 2018 Last revised: 21 May 2020
Date Written: May 20, 2020
Payments and discounts incentivize participation in many transactions about which people know little, but can learn more --- payments 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 increasing participation payments disproportionately attracts individuals for whom learning about the transaction is harder. These participants decide based on worse information and are more likely to regret their decision ex post. The learning-based selection effect is stronger when information acquisition is more costly. Moreover, it outweighs selection on risk preferences in many of our treatments.
Keywords: experiment, rational inattention, repugnant transactions, incentives
JEL Classification: D01, D63, D83, D91, C91
Suggested Citation: Suggested Citation