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The effect of coarse reasoning on a search and matching market with transferable utility

Andersson, Ludvig LU (2025) In Journal of Economic Behavior and Organization 240.
Abstract

This paper studies a frictional search and matching market with transferable utility while relaxing the assumption of rational expectations. This is done by introducing bounded rationality in the form of analogy-based expectations equilibrium. I find that boundedly rational agents underestimate their prospects on the market. Consequently, they become impatient and willing to accept a larger set of matches. The resulting equilibrium outcome is characterized by greater mismatch than that with rational expectations. The effect of analogy-based expectations on equilibrium strategies is similar to the effect of search frictions. Hence, reducing the search frictions may dampen the negative effect induced by bounded rationality.

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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Analogy based expectations, Bounded rationality, Matching, Search theory, Transferable utility
in
Journal of Economic Behavior and Organization
volume
240
article number
107326
publisher
Elsevier
external identifiers
  • scopus:105022089511
ISSN
0167-2681
DOI
10.1016/j.jebo.2025.107326
language
English
LU publication?
yes
additional info
Publisher Copyright: © 2025 The Author
id
27e83158-096d-4aee-892f-d5a9d0fcbe0f
date added to LUP
2026-01-16 15:59:45
date last changed
2026-01-16 15:59:45
@article{27e83158-096d-4aee-892f-d5a9d0fcbe0f,
  abstract     = {{<p>This paper studies a frictional search and matching market with transferable utility while relaxing the assumption of rational expectations. This is done by introducing bounded rationality in the form of analogy-based expectations equilibrium. I find that boundedly rational agents underestimate their prospects on the market. Consequently, they become impatient and willing to accept a larger set of matches. The resulting equilibrium outcome is characterized by greater mismatch than that with rational expectations. The effect of analogy-based expectations on equilibrium strategies is similar to the effect of search frictions. Hence, reducing the search frictions may dampen the negative effect induced by bounded rationality.</p>}},
  author       = {{Andersson, Ludvig}},
  issn         = {{0167-2681}},
  keywords     = {{Analogy based expectations; Bounded rationality; Matching; Search theory; Transferable utility}},
  language     = {{eng}},
  publisher    = {{Elsevier}},
  series       = {{Journal of Economic Behavior and Organization}},
  title        = {{The effect of coarse reasoning on a search and matching market with transferable utility}},
  url          = {{http://dx.doi.org/10.1016/j.jebo.2025.107326}},
  doi          = {{10.1016/j.jebo.2025.107326}},
  volume       = {{240}},
  year         = {{2025}},
}