Alleviating behavioral biases at job search: Do nudges work?

Abstract

We experimentally study the effectiveness of policy interventions in reducing the negative welfare effects of behavioral biases on job search. Due to quasi-hyperbolic discounting, individuals reduce their search effort and reservation wage, while the sunk-cost fallacy makes individuals decrease their reservation wage over the search spell. We compare the effects of search cost reduction and nudging. We find that search cost reduction increases the search effort and payoffs but not the reservation wage. Conversely, nudging increases the reservation wage, but not the search effort or payoffs. Both interventions reduce the impact of the sunk-cost fallacy on the reservation wage.