Stability Induces Pre-Matching Gambles

Abstract

This paper initiates the investigation into pre-matching gambles. Examples of pre-matching gambles include occupational choices before the marriage market, college major choices before the labor market, and financial portfolio management to attract future investors. Surprisingly, people take risky investments they would have not taken if not for the subsequent participation in competitive matching markets. A fundamental and unique feature of the competitive matching market, which I call the competitive rematching effect, drives pre-matching gambles. The competitive rematching effect drives gambling independently of the shape of the surplus function, contrary to the possible misconception that surplus supermodularity and positive-assortative matching play a role. Finally, the paper discusses implications to efficiency and inequality associated with gambles, and to occupational choices with marital concerns.