Direct Tests of the Reservation Wage Property

This paper provides the first direct experimental tests of the reservation wages predicted by finite horizon job search models. Previous indirect tests were based on search duration and search income. The authors show that such indirect tests are weak by demonstrating that a naive rule performs essentially as well as the risk neutral model in predicting search duration. In contrast, direct tests of predicted reservation wages imply rejections of both the naive rule and the risk neutral model. The general concave model survives direct tests with reservation wage data, as does a specific (logistic) concave model.