Optimal Truncation in Matching Markets
AbstractSince no stable matching mechanism can induce truth-telling as a dominant strategy for all participants, there is often room in matching markets for strategic misrepresentation (Roth ). In this paper we study a natural form of strategic misrepresentation: reporting a truncation of one's true preference list. Roth and Rothblum  prove an important but abstract result: in certain symmetric, incomplete information settings, agents on one side of the market (“the women”) optimally submit some truncation of their true preference lists. In this paper we put structure on this truncation, both in symmetric and general settings, when agents must submit preference lists to the Men-Proposing Deferred Acceptance Algorithm. We first characterize each woman's truncation payoffs in an incomplete information setting in terms of the distribution of her achievable mates. The optimal degree of truncation can be substantial: we prove that in a uniform setting, the optimal degree of truncation for an individual woman goes to 100% of her list as the market size grows large, when other women are truthful. In this setting, we demonstrate the existence of an equilibrium where all agents use truncation strategies. Compared to truthful reporting, in any equilibrium in truncation strategies, welfare diverges for men and women: women prefer the truncation equilibrium, while men would prefer that participants truthfully report. In a general environment, we show that the less risk averse a player, the greater the degree of her optimal truncation. Finally, when correlation in preferences increases, players should truncate less. While several recent papers have focused on the limits of strategic manipulation, our results serve as a reminder that without the pre-conditions ensuring truthful reporting, even in settings where agents have little information, the potential for manipulation can be significant.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.49.
Date of creation: May 2013
Date of revision:
Matching Markets; Truncation;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D47 - Microeconomics - - Market Structure and Pricing - - - Market Design
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-CTA-2013-06-16 (Contract Theory & Applications)
- NEP-DEM-2013-06-16 (Demographic Economics)
- NEP-GTH-2013-06-16 (Game Theory)
- NEP-MIC-2013-06-16 (Microeconomics)
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