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An Experimental Test of the No Safety Schools Theorem

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Abstract

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 ?nding experimentally and show that subjects select similar portfolios when the payo?s are independent, suggesting subjects ignore the rival nature of the options.

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  • David B. Johnson & Matthew D. Webb, 2017. "An Experimental Test of the No Safety Schools Theorem," Carleton Economic Papers 17-10, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:17-10
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    1. Jan-Erik Lönnqvist & Markku Verkasalo & Gari Walkowitz & Philipp C. Wichardt, 2011. "Measuring Individual Risk Attitudes in the Lab: Task or Ask?: An Empirical Comparison," SOEPpapers on Multidisciplinary Panel Data Research 370, DIW Berlin, The German Socio-Economic Panel (SOEP).
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    7. Amanda Pallais, 2015. "Small Differences That Matter: Mistakes in Applying to College," Journal of Labor Economics, University of Chicago Press, vol. 33(2), pages 493-520.
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    9. Chao Fu, 2014. "Equilibrium Tuition, Applications, Admissions, and Enrollment in the College Market," Journal of Political Economy, University of Chicago Press, vol. 122(2), pages 225-281.
    10. Lönnqvist, Jan-Erik & Verkasalo, Markku & Walkowitz, Gari & Wichardt, Philipp C., 2015. "Measuring individual risk attitudes in the lab: Task or ask? An empirical comparison," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 254-266.
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    Keywords

    Decision Making; Simultaneous Search; Correlation Neglect; Online Experiment; College Application;
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