BEE Lab Meeting: Sherry Gao

Thu, 11/08/2018 - 1:00pm to 2:00pm

 4330 North Quad

BEE (Behavioral and Experimental Economics) Lab Seminar

Job market signaling: An experimental study of education degree as an imperfect signal


Inspired by the phenomenon of dropouts, this paper introduces the risk of dropout into Spence’s job market signaling model to explain the wage premium associated with academic degrees. I look at a labor market where the workers can pursue a degree with some cost, but may fail to meet the degree requirements and drop out involuntarily without the degree.

Within this framework and assuming the dropout risk is higher for low-ability workers, I first relax the requirement on cost-difference in order to induce signaling behavior and explain the wage differential. Second, assuming workers have different risk attitudes, I propose a ``partially separating equilibrium'' in which the self-selection of workers into the education program depends both on their abilities and on their risk attitudes. 

Using lab experiments, I test these theoretical predictions with an focus on the effectiveness of Cho-Kreps intuitive criterion in equilibrium selection, and also elicit subjects' risk preferences to explain their strategies in the signaling games. Data show that separation in workers' educational choices is less complete when the pooling equilibrium cannot be refined by the criterion and when workers in the market are more risk averse.

Speaker Bio

Sherry Xiaoxue Gao is an assistant professor in the Department of Resource Economics and the co-director of the Cleve E. Willis Experimental Economics Laboratory at University of Massachusetts Amherst. Sherry’s researches look at how people make decisions under risks in the areas of labor economics, health economics and applied econometrics, using methods of mathematical modeling, experimental design and a wide range of statistical toolkits. In one project, she analyzes the effects of dropout risks and students’ risk attitudes on educational choices and degree wage premiums in the equilibrium of an experimental labor market. In the other two projects related to health economics, she investigates the determinants of the college students’ flu shot decisions, and examines the effects of negative aging stereotypes on older adults’ risk and time preferences as well as their preventative health care decisions.