“Self-confidence and unraveling in matching markets”

On Wednesday, February 28th, at 2.30pm the NOVAFRICA Center welcomes Marie-Pierre Dargnies, from University of Paris Dauphine, to present her work.

Marie-Pierre Dargnies (University of Paris Dauphine)

We document experimentally how biased self-assessments affect the outcome of matching markets. In the experiments, we exogenously manipulate the self-confidence of participants regarding their relative performance by employing hard and easy real-effort tasks. We give participants the option to accept early offers before information about their performance has been revealed, or to wait for the assortative matching based on their relative performance. Early offers are more often accepted when the task is hard than when it is easy. We show that the treatment effect works through a shift in beliefs, i.e., underconfident agents are more likely to accept early offers than overconfident agents. The experiment identifies a behavioral determinant of unraveling, namely biased self-assessments, which can lead to penalties for underconfident individuals and to efficiency losses and unstable outcomes of markets.

Find more information about this seminar here.