Template-Type: ReDIF-Paper 1.0
Title: School Choice and Loss Aversion
Author-Name: Vincent Meisner
Author-Email: vincent.meisner@tuberlin.de
Author-Name: Jonas von Wangenheim
Author-Email: jwangenheim@uni-bonn.de

Classification-JEL: C78, D47, D78, D81, D82, D91
Keywords: Market design, Matching, School choice, Reference-dependent preferences, Loss aversion, Deferred acceptance

Abstract: Evidence suggests that participants in direct student-proposing deferred-acceptance
mechanisms (DSPDA) play dominated strategies. 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 non-truthful
preference submissions can be strictly optimal if and only if they are top-choice
monotone. In equilibrium, DSPDA may implement allocations with justified envy.
Specifically, it discriminates against students who are more loss averse or less con-
fident than their peers, and amplifies already existing discrimination. To level the
playing field, we propose sequential mechanisms as an alternative that is robust to
these biases.

Note: 
Length: 41
Creation-Date: 2021-07
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp312
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2021_312