American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Hedging When Applying: Simultaneous Search with Correlation
American Economic Review
vol. 115,
no. 2, February 2025
(pp. 571–98)
Abstract
Applicants to schools, colleges, and jobs hedge by applying to a broad range of options, including reaches, matches, and safeties. We develop a simultaneous-search framework that rationalizes this practice. In this framework, the admissions process is correlated across schools so that if an applicant is rejected by one school, she is more likely to be rejected by more selective schools. We find that an applicant then optimally targets both safeties and reaches. We characterize how the optimal portfolio varies with the applicant's beliefs, risk attitudes, and application costs and offer an algorithm that delivers the optimal portfolio in polynomial time.Citation
Ali, S. Nageeb, and Ran I. Shorrer. 2025. "Hedging When Applying: Simultaneous Search with Correlation." American Economic Review 115 (2): 571–98. DOI: 10.1257/aer.20211137Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- I23 Higher Education; Research Institutions