Loss aversion in strategy-proof school-choice mechanisms

Vincent Meisner and Jonas von Wangenheim

Journal of Economic Theory, 2023, vol. 207, issue C

Abstract: Evidence suggests that participants in strategy-proof matching mechanisms play dominated strategies. To explain the data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria. We find that non-truthful preference submissions can be strictly optimal if and only if they are top-rank monotone. In equilibrium, inefficiency or justified envy may arise in seemingly stable or efficient mechanisms. Specifically, students who are more loss averse or less confident than their peers obtain suboptimal allocations.

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)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:207:y:2023:i:c:s0022053122001788

DOI: 10.1016/j.jet.2022.105588

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