DP14103 Searching Forever After

Author(s): Yair Antler, Benjamin Bachi
Publication Date: November 2019
Keyword(s): Boundedly rational expectations, Coarse reasoning, Dating, Marriage Market, Matching, Two-sided search
JEL(s):
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14103

We study a model of two-sided search in which agents' 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 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 1 as search frictions vanish. Thus, improvements in the search technology may backfire and even lead to market failure.