We study a model of two-sided search in which agents’ strategic reasoning is coarse. In equilibrium, the most desirable agents behave as if they were fully rational, while for all other agents, coarse reasoning results in overoptimism with regard to their prospects in the market. Consequently, they search longer than is optimal. Moreover, agents with intermediate match values may search indefinitely while all other agents eventually marry. We show that the share of eternal singles converges monotonically to one as search frictions vanish. Thus, improvements in search technology may backfire and even lead to market failure.
Bibliographical noteFunding Information:
*Antler: Coller School of Management, Tel Aviv University (email: email@example.com); Bachi: Department of Economics, University of Haifa (email: firstname.lastname@example.org). Leslie Marx was coeditor for this article. We thank Daniel Bird, Kfir Eliaz, Tobias Gamp, Yuval Heller, Philippe Jehiel, Johannes Johnen, Dotan Persitz, Santiago Oliveros, Ariel Rubinstein, Yossi Spiegel, Rani Spiegler, and four anonymous referees for helpful comments and suggestions. We also thank seminar and conference audiences at Bar Ilan University, EEA 2020, ESWC 2020, HU Berlin, Tel Aviv University, University of East Anglia BGT Workshop, and University of Essex for useful comments. Antler gratefully acknowledges financial support from the Henry Crown Institute of Business Research in Israel.
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ASJC Scopus subject areas
- Economics, Econometrics and Finance (all)