Screening Dominance: A Comparison of Noisy Signals

Lagziel, David; Lehrer, Ehud

Abstract

This paper studies the impact of noisy signals on screening processes. It deals with a decision problem in which a decision-maker screens a set of elements based on noisy unbiased evaluations. Given that the decision-maker uses threshold strategies, we show that additional binary noise can potentially improve a screening, an effect that resembles a "lucky coin toss." We compare different noisy signals under threshold strategies and optimal ones, and we provide several characterizations of cases in which one noise is preferable over another. Accordingly so, we establish a novel method to compare noise variables using a contraction mapping between percentiles.

Citation

Lagziel, D., & Lehrer, E. (2022). Screening Dominance: A Comparison of Noisy Signals. American Economic Journal: Microeconomics, 14(4), 1-24. https://doi.org/10.1257/mic.20200284

• Journal Article Type: Article
• Acceptance Date: Jan 1, 2022
• Online Publication Date: Nov 1, 2022
• Publication Date: 2022-11
• Deposit Date: Aug 16, 2023
• Journal: American Economic Journal: Microeconomics
• Print ISSN: 1945-7669
• Electronic ISSN: 1945-7685
• Publisher: American Economic Association
• Peer Reviewed: Peer Reviewed
• Volume: 14
• Issue: 4
• Pages: 1-24
• DOI: https://doi.org/10.1257/mic.20200284
• Keywords: General Economics, Econometrics and Finance
• Public URL: https://durham-repository.worktribe.com/output/1719718