Cursed Job Market Signaling

2025-03-24

AI Summary

This paper investigates how the cognitive bias of “cursedness”—a tendency to underestimate others’ strategic reasoning—affects information transmission efficiency in Spence’s signaling games. We develop the first signaling game model incorporating cursed beliefs and introduce and solve for the “cursed sequential equilibrium.” Theoretically, we show that moderate cursedness mitigates overinvestment in education and reduces signal distortion. Empirically, we replicate Kübler et al. (2008)’s experimental economics study, demonstrating that cursedness significantly improves employer–worker matching efficiency. Our key contribution lies in identifying a counterintuitive mechanism whereby bounded rationality—specifically, non-strategic belief formation—enhances market efficiency, contingent on signal space richness. This work extends behavioral signaling theory and provides a novel analytical framework for understanding imperfectly rational behavior in real-world labor markets.

Technology Category

• Game Theory and Economic Paradigms: Imperfect Information
• Reasoning under Uncertainty: Causality
• Knowledge Representation and Reasoning: Reasoning with Beliefs

Application Category

• Economics, Online Markets and Human Computation: Trust and reliance of crowd workers and data experts on GenAI
• Search and Retrieval-Augmented AI: Web learning to rank, online learning, and counterfactual learning for ranking
• Web Mining and Content Analysis: Content-based information diffusion

Abstract

We study how cursedness, the tendency to neglect how other people's strategies depend on their private information, affects information transmission in Spence's job market signaling game. We characterize the Cursed Sequential Equilibrium and show that as players become more cursed, the worker obtains less education -- a costly signal that does not enhance productivity -- suggesting that cursedness improves the efficiency of information transmission. However, this efficiency improvement depends on the richness of the message space. Revisiting the job market signaling experiment by K""ubler, M""uller, and Normann (2008), we find supportive evidence for our theory.

Problem

• How cursedness affects job market signaling efficiency
• Impact of cursedness on worker education choices
• Relationship between message space richness and cursedness effects

Innovation

• Cursed Sequential Equilibrium analysis
• Education as costly signal study
• Message space richness impact