School Choice and Loss Aversion

Vincent Meisner and Jonas von Wangenheim ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Evidence suggests that participants in direct student-proposing deferred-acceptance mechanisms (DSPDA) play dominated strategies. To explain the observed data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria in DSPDA. We find that non-truthful preference submissions can be strictly optimal if and only if they are top-choice monotone. In equilibrium, DSPDA may implement allocations with justified envy. Specifically, it discriminates against students who are more loss averse or less con- fident than their peers, and amplifies already existing discrimination. To level the playing field, we propose sequential mechanisms as an alternative that is robust to these biases.

Keywords: Market design; Matching; School choice; Reference-dependent preferences; Loss aversion; Deferred acceptance (search for similar items in EconPapers)
JEL-codes: C78 D47 D78 D81 D82 D91 (search for similar items in EconPapers)
Pages: 41
Date: 2021-07
New Economics Papers: this item is included in nep-des, nep-exp, nep-mic, nep-upt and nep-ure
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: School Choice and Loss Aversion (2021)
Working Paper: School Choice and Loss Aversion (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2021_312

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