Institute for Research on Labor and Employment

This paper theorizes on how categorical distinctions affect market closure. Contrary to expectations that greater variation in choices allows a buyer to optimize their transactions, I find evidence in a labor market for freelancing services which suggests otherwise. In particular, the less categorical overlap of past experiences of freelancers bidding on a job, the less likely a buyer will choose any of them and the longer it takes the buyer to do so if they eventually do make a decision. Because categories serve to demarcate like-experiences, greater categorical overlap of the past experiences of freelancers makes them easier to compare, thereby facilitating a decision. However, more experienced buyers of services should be more attuned to what skills are valuable for their task. Therefore, I predict that this effect is moderated by increased experience. These hypotheses are tested with data from www.elance.com. Support is found for the two main effects and partial support is demonstrated for the moderation effect.