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Good News and Bad News: Search from Unknown Wage Offer Distributions

Published online by Cambridge University Press:  14 March 2025

James C. Cox  and
Ronald L. Oaxaca
James C. Cox*
Affiliation:
Department of Economics and Economic Science Laboratory, University of Arizona, Tucson, AZ 85721-0108
Ronald L. Oaxaca*
Affiliation:
Department of Economics, University of Arizona, Tucson, AZ 85721-0108
*
email: [email protected]
email: [email protected]
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Abstract

The largest market in national economies is the labor market. Labor market contracting is characterized by job search, often from unknown wage offer distributions. This paper reports experimental tests of finite horizon models of job search in which the wage offer distribution is unknown. Theoretically-optimal search from an unknown wage offer distribution can have the seemingly paradoxical property that some offers will be accepted that are lower than other offers that will be rejected in the same period of the search horizon. Thus the reservation wage property (or lowest acceptable wage path) may not exist. This can occur because an offer that is a priori relatively high (“good news”) can imply that it is highly probable that search is from a favorable distribution, and such an offer can look unattractive when it is an a posteriori relatively low offer from a favorable distribution (“bad news”). This paper reports results from experimental treatments for search from unknown distributions in which the reservation wage property does exist and treatments in which it does not exist. We find that the consistency of search behavior with search theory reported in earlier papers is robust to the presence or absence of the reservation wage property and to whether the draws come from known or unknown distributions.

Keywords

job searchunknown distributionsreservation wage propertycontrolled experiments

JEL classification

J64: Unemployment: Models, Duration, Incidence, and Job Search C91: Laboratory, Individual Behavior D83: Search • Learning • Information and Knowledge • Communication • Belief • Unawareness
Type
Research Article
Information
Experimental Economics , Volume 2 , Issue 3 , March 2000 , pp. 197 - 225
Copyright
Copyright © 1999 Economic Science Association

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