School Choice and Loss Aversion

Vincent Meisner and Jonas von Wangenheim
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Jonas von Wangenheim: FU Berlin

No 208, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Extensive evidence suggests that participants in the direct student-proposing deferred-acceptance mechanism (DSPDA) play dominated strategies. In particular, students with low priority tend to misrepresent their preferences for popular schools. To explain the observed data, we introduce expectationbased loss aversion into a school-choice setting and characterize choiceacclimating personal equilibria in DSPDA. Truthful equilibria can fail to exist, and DSPDA might implement unstable and more inefficient allocations in both small and large markets. Specifically, it discriminates against students who are more loss averse or less overconfident than their peers, and amplifies already existing (or perceived) discrimination. To level the playing field, we propose serial dictatorship mechanisms as a strategyproof and stable 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 D78 D81 D82 D91 (search for similar items in EconPapers)
Date: 2019-12-05
New Economics Papers: this item is included in nep-des, nep-exp, nep-upt and nep-ure
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Related works:
Working Paper: School Choice and Loss Aversion (2021)
Working Paper: School Choice and Loss Aversion (2021)
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