ECONOMIC SEARCH: AN EXPERIMENTAL STUDY

Abstract

This paper presents results of experiments designed to test several of the hypotheses present in the theoretical literature on “optimal” economic search. First we test whether the subjects (searchers) actually search for wages in ways that are consistent with setting an optimal reservation wage. We then proceed to determine experimentally the effects of risk aversion, increased search costs, changes in risk (brought about by a mean-preserving transformation of the distribution of wage offers), the presence or absence of recall, the existence of a finite horizon, and the searcher's state of knowledge about the underlying distribution of wages. In general, we find that the searchers exhibit behavior that is consistent with that predicted by theory. Differences between risk neutral and risk averse searchers are found, and the responses of both groups to changes in search costs, in the degree of risk, or in the state of knowledge are consistent with theoretical predictions.

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