Matching with noise and the acceptance curse

This paper explores matching with both search and information frictions. Specifically. everyone observes only a noisy signal of the true type of any potential mate. In this context. matching decisions must incorporate not only information about a partner's attribute conveyed by the noisy signal. but also-as in the winner's curse in auction theory-information about a partner's type contained in his or her acceptance decision. We show that there exists an equilibrium exhibiting a stochastic positive assorting of types, generalizing [Becker. J. Polit. Economy 81 (1973) 813-846]. In equilibrium, selection is adverse: being accepted reduces an agent's estimate of a potential partner's type, a phenomenon that we call the acceptance curse effect. (c) 2005 Elsevier Inc. All rights reserved.