Peer effects through receiving advice in job search: An experimental study

We study experimentally whether receiving advice from an experienced decision-maker improves decisions in an infinite-horizon search task where individuals typically choose a lower reservation wage than the optimal value. In the experiment, advisors complete 10 rounds of search and leave advice to their advisees who also complete 10 rounds of search after seeing the advice. We find that advisors tend to recommend a smaller reservation wage than their own lower than optimal choices. They formulate recommendation based on their reservation wage choice in the period when they accepted an offer, which is typically their lowest reservation wage choice over the search spell. Advisees follow this recommendation and choose a reservation wage that is further away from the optimal value leading to significant treatment differences between the advisors and advisees. Eliciting advice specifically for the starting period of the search round does not result in such negative effect of advice. Overall, we find that receiving advice does not facilitate the optimal choice in the search task.

Duke Scholars

Author Gergely Horvath DKU Faculty