Search theory
Search theory examines supply and markets, which are on that trading partners are not instantaneous, so must first search for a suitable trading partner demand behavior.
Search theory was and is influential in many areas of economics. In labor economics it is applied to analyze frictional unemployment, ie unemployment that results from job search. In consumer theory, it was used to analyze purchasing decisions. From the perspective of a worker a job should be paid well, offering attractive conditions, such as social security, and a pleasant and safe working environment. From the perspective of a consumer product must have sufficient quality and are offered sufficiently low to classify it as a potentially purchasable. In both cases, the acceptance of the product or of the job depends on believes to have on the market which alternatives the seeker.
Specifically, the search theory examines the optimal strategy of an individual, if there is to choose from a number of possibilities uncertain output, assuming that a delay of the decision comes at a cost. Show search models, such as the individual costs by delaying the decision against the benefit to try another way or to evaluate ex ante, weighs. Mathematically, it involves optimal stopping problems. Macroeconomists have the search theory of general equilibrium models in which interact with one or more finder applied. This theory is called matching theory.
Search for a given distribution
George J. Stigler began with research on the search behavior of workers for jobs as an economic problem. John J. McCall struck by a dynamic model of job search before, based on the mathematical method of optimal stopping. On this basis, many of the subsequent work caused in this area. He examined which jobs should adopt a labor -seeking individual if it are the alternatives available to him potentially available known and does not change ( the distribution of alternatives is therefore known and constant ) and the value of money remains the same. In his research, he called those wages as reservation wage, also the individual a job just wants to accept. The optimal strategy of the individual is now to turn down any job that offers a lower wage than the reservation wage, and to accept any job that offers a higher wage. The reservation wage of an individual may change. When about by long periods of unemployment, the qualifications of the individual deteriorates, so does the job alternatives are worse ( ie the distribution changes). Interestingly, this relationship is seen particularly over time: the longer the individual rejects job offers (hoping to get better ), the more drops his reservation wage. Similarly, the reservation wage could fall, because the individual fears that out of money before it can stop searching satisfactory. An interesting observation in McCall's model is that the larger the variance of wages offered, the longer the optimal search process goes, even if the individual is risk averse. Holding the arithmetic mean of the wages constant, but increases its variance, the individual will want to look no further. It sets a higher reservation wage, hoping to achieve a very good salary. The fact that the individual in finding also comes across extremely poor deals, interferes little, since bad offers can be rejected.
McCall focused in the application of search theory to the search behavior of unemployed individuals. His results but you can also use in consumer theory. In this context it is called the highest price that an individual just is not ready to pay, reservation price.
Search for an unknown distribution
If the individual does not know the distribution of wage offers, it is to seek an additional incentive: the longer it looks, the more it can learn about the distribution of offers. Search in unknown distributions is also called multi-arm bandit problem. The name comes from the term one-armed bandit is a slot machines in casinos, where you can only say something about the distribution of dividends, where you tried it, so plays. Optimal search strategies for unknown distributions was analyzed by allocation indices, such as the Gittings index.
Endogenize the price distribution
In the investigation of search problems encountered economists to the question, why at all the same good should be sold at different prices in an equilibrium market, what the classical microeconomics contradicts. Do individuals but imperfect information about where they can find the goods at the lowest cost (ie whenever searching is required), providers will choose different prices and be indifferent between this theory: Some will raise prices and only the individuals with higher act reservation prices. Others will choose lower prices to sell more because they will beat the reservation price of the individuals more often.
Matching theory
In more recent research, the search theory was embedded in macroeconomic models, more precisely, in a framework called matching theory. Peter A. Diamond, Dale Mortensen and Christopher A. Pissarides have won the Nobel Prize for Economics in 2010 for their research on matching theory.
Applying matching theory to labor markets where there are two Viewfinder: First, the individuals who are looking for employers who are looking for other companies, workers. The rate at which new jobs can be created, now depends upon the interaction of both groups. Some models incorporate a wage distribution, simplify others by implying that individuals had a vague and random time unemployed before they start working again. As a distribution of wages is effected via the reservation wage mechanism.