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A Bias of Screening

Author

Listed:
  • David Lagziel
  • Ehud Lehrer

Abstract

This paper deals with the issue of screening. It focuses on a decision maker who, based on noisy unbiased assessments, screens elements from a general set. Our analysis shows that stricter screening not only reduces the number of accepted elements, but possibly reduces their average expected value. We provide a characterization for optimal threshold strategies for screening and also derive implications to cases where such screening strategies are suboptimal. We further provide various applications of our results to credit ratings, auctions, general trade, the Peter Principle, and affirmative action.

Suggested Citation

  • David Lagziel & Ehud Lehrer, 2019. "A Bias of Screening," American Economic Review: Insights, American Economic Association, vol. 1(3), pages 343-356, December.
    • Handle: RePEc:aea:aerins:v:1:y:2019:i:3:p:343-56
    Note: DOI: 10.1257/aeri.20180578
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    References listed on IDEAS

    as
    1. Sarah Parlane, 2003. "Procurement Contracts under Limited Liability," The Economic and Social Review, Economic and Social Studies, vol. 34(1), pages 1-21.
    2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    3. Edward P. Lazear, 2004. "The Peter Principle: A Theory of Decline," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 141-163, February.
    4. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
    5. Lagziel, David, 2019. "Credit auctions and bid caps," Games and Economic Behavior, Elsevier, vol. 113(C), pages 416-422.
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    Cited by:

    1. Heinsalu, Sander, 2020. "Reversals of signal-posterior monotonicity imply a bias of screening," Journal of Economic Theory, Elsevier, vol. 188(C).
    2. David Lagziel & Ehud Lehrer, 2019. "A Comparison of Noisy Signals in Screening," Working Papers 1904, Ben-Gurion University of the Negev, Department of Economics.

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    More about this item

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • F10 - International Economics - - Trade - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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