Can Agents 'Report Their Types'? An Experiment that Changed the Course Allocation Mechanism at Wharton

Abstract

This paper reports on an experimental test of a new market design that is attractive in theory but makes the common and potentially unrealistic assumption that “agents report their type”; that is, that market participants can perfectly report their preferences to the mechanism. Concerns about preference reporting led to a novel experimental design that brought real market participants’ real preferences into the lab, as opposed to endowing experimental subjects with artificial preferences as is typical in market design. The experiment found that market participants were able to report their preferences “accurately enough” to realize efficiency and fairness benefits of the mechanism even while preference reporting mistakes meaningfully harmed mechanism performance. The experimental results persuaded the Wharton School to adopt the new mechanism and helped guide its practical implementation.

Keywords: Market Design, Experiments, Matching Theory

JEL Classification: D47, C9, C78