An Experimental Test of the No Safety Schools Theorem
In simultaneous search problems individuals choose a portfolio of risky options from a larger menu of options with utility determined by the portfolio's option with the best ex-post outcome. Chade and Smith (2006) examine simultaneous search problems and show that the optimal portfolio includes the utility maximizing option and others that are riskier. However, Pallais (2015) shows that when individuals apply to more colleges, their decisions are inconsistent with theoretical predictions. We replicate this finding experimentally and show that subjects select similar portfolios when the payoffs are independent, suggesting subjects ignore the rival nature of the options.
|Keywords||Decision Making, Simultaneous Search, Correlation Neglect, Online Experiment, College Application|
|Publisher||Department of Economics|
|Series||Carleton Economics Working Papers (CEWP)|
Johnson, David B., & Webb, M. (2017). An Experimental Test of the No Safety Schools Theorem (No. CEP 17-10). Carleton Economics Working Papers (CEWP). Department of Economics.