Limited strategic thinking and the cursed match

Abstract

In vertically differentiated matching markets with private information, agents face an acceptance curse: being accepted as a partner conveys bad news. We experimentally investigate whether individuals anticipate the acceptance curse in such an environment. We test the effect of an exogenous change in reservation values which, by making some types more selective, induces significant changes in the posterior distribution of match qualities. Consistent with limited strategic sophistication, subjects do not respond to this manipulation. Through additional investigation and structural estimations, we suggest a mechanism explaining the lack of subjects' response: out-of-equilibrium beliefs are quantitatively more important than limited conditional thinking.