Correlation Neglect in Student-to-School Matching
40 Pages Posted: 13 Aug 2019 Last revised: 22 Oct 2019
Date Written: August 8, 2019
A growing body of evidence suggests that decision-makers fail to account for correlation in signals that they receive. We study the relevance of this mistake in students' interactions with school- choice matching mechanisms. In a lab experiment presenting simple and incentivized school-choice scenarios, we find that subjects tend to follow optimal application strategies when schools' admissions decisions are determined independently. However, when schools rely on a common priority — inducing correlation in their decisions — decision making suffers: application strategies become substantially more aggressive and fail to include attractive "safety" options. We document that this pattern holds even within-subject, with significant fractions of participants applying to different programs in mathematically equivalent situations that differ only by the presence of correlation. We provide a battery of tests suggesting that this phenomenon is at least partially driven by correlation neglect, and we discuss implications that arise for the design and deployment of student-to-school matching mechanisms.
Keywords: matching, correlation neglect, laboratory experiment
JEL Classification: C91, D01, D03, M21
Suggested Citation: Suggested Citation