School Choice and Loss Aversion

37 Pages Posted: 10 Dec 2019 Last revised: 2 Oct 2020

See all articles by Vincent Meisner

Vincent Meisner

TU Berlin

Jonas von Wangenheim

University of Bonn - Department of Economics; Free University of Berlin (FUB)

Date Written: December 2, 2019

Abstract

Extensive evidence suggests that participants in the direct student-proposing deferred-acceptance mechanism (DSPDA) play dominated strategies. In particular, students tend to misrepresent preferences for their top choices. To explain the observed data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria in DSPDA. We find that only top-choice monotone rank-ordered lists can be strictly optimal, and truthful equilibria can fail to exist. In equilibirum, DSPDA may implement unstable allocations in both large and small markets. Specifically, it discriminates against students who are more loss averse or less confident than their peers, and amplifies already existing (or perceived) discrimination. To level the playing field, we propose sequential 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

JEL Classification: C78, D47, D78, D81, D82, D91

Suggested Citation

Meisner, Vincent and von Wangenheim, Jonas, School Choice and Loss Aversion (December 2, 2019). Available at SSRN: https://ssrn.com/abstract=3496769 or http://dx.doi.org/10.2139/ssrn.3496769

Vincent Meisner (Contact Author)

TU Berlin ( email )

Stra├če des 17
Juni 135
Berlin, 10623
Germany

Jonas Von Wangenheim

University of Bonn - Department of Economics ( email )

Bonn
Germany

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
106
Abstract Views
588
rank
283,741
PlumX Metrics