Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222105 
Year of Publication: 
2019
Series/Report no.: 
Discussion Paper No. 208
Publisher: 
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin
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 agains 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.
Subjects: 
Market design
Matching
School choice
Reference-dependent preferences
Loss aversion
Deferred acceptance
JEL: 
C78
D78
D82
D81
D91
Document Type: 
Working Paper

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