Sequential Search with Ex Post Uncertainty

In traditional sequential search models, players face ex ante uncertainty prior to each search but obtain certain outcomes after the search. With the ex ante uncertainty, the players’ reservation values increase with their level of risk tolerance. We study a sequential search problem with ex post uncertainty in which the uncertainty cannot be fully eliminated by the search. In our laboratory experiment, the subjects play sequential search games under the two types of uncertainty treatments, and their risk preferences are elicited by both a multiple price list and a bomb risk elicitation task. With the ex post uncertainty, risk-averse subjects increase their reservation probabilities and extend their search duration. The results also indicate that the subjects do not always follow the traditional constant reservation value strategy.

Keywords: Sequential search, Ex post uncertainty, Risk elicitation, Laboratory experiment.

JEL Classification: C91, D81, D83