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Hedging When Applying: Simultaneous Search with Correlation

Author

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  • S. Nageeb Ali
  • Ran I. Shorrer

Abstract

Applicants to schools, colleges, and jobs hedge by applying to a broad range of options, including reaches, matches, and safeties. We develop a simultaneous-search framework that rationalizes this practice. In this framework, the admissions process is correlated across schools so that if an applicant is rejected by one school, she is more likely to be rejected by more selective schools. We find that an applicant then optimally targets both safeties and reaches. We characterize how the optimal portfolio varies with the applicant's beliefs, risk attitudes, and application costs and offer an algorithm that delivers the optimal portfolio in polynomial time.

Suggested Citation

  • S. Nageeb Ali & Ran I. Shorrer, 2025. "Hedging When Applying: Simultaneous Search with Correlation," American Economic Review, American Economic Association, vol. 115(2), pages 571-598, February.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:2:p:571-98
    DOI: 10.1257/aer.20211137
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions

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