Information Acquisition in Matching Markets: The Role of Price Discovery
65 Pages Posted:
Date Written: October 5, 2020
We explore the acquisition and flow of information in matching markets through a model of college admissions with endogenous costly information acquisition.
We extend the notion of stability to this partial information setting, and introduce regret-free stability as a refinement that additionally requires optimal student information acquisition.
We show regret-free stable outcomes exist, and finding them is equivalent to finding appropriately-defined market-clearing cutoffs.
To understand information flows, we recast matching mechanisms as price-discovery processes.
No mechanism guarantees a regret-free stable outcome, because information deadlocks imply some students must acquire information suboptimally.
Our analysis suggests approaches for facilitating efficient price discovery,
leveraging historical information or market sub-samples to estimate cutoffs.
We show that mechanisms that use such methods to advise applicants on their admission chances yield approximately regret-free stable outcomes.
A survey of university admission systems highlights the practical importance of providing applicants with information about their admission chances.
Keywords: Matching, information acquisition
JEL Classification: D47,D83
Suggested Citation: Suggested Citation