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School Choice and Loss Aversion

Author

Listed:
  • Meisner, Vincent

    (TU Berlin)

  • von Wangenheim, Jonas

    (FU Berlin)

Abstract

Extensive evidence suggests that participants in the direct student-proposing deferred-acceptance mechanism (DSPDA) play dominated strategies. In particular, students with low priority tend to misrepresent their preferences for popular schools. To explain the observed data, we introduce expectationbased loss aversion into a school-choice setting and characterize choiceacclimating personal equilibria in DSPDA. Truthful equilibria can fail to exist, and DSPDA might implement unstable and more inefficient allocations in both small and large markets. Specifically, it discriminates against students who are more loss averse or less overconfident than their peers, and amplifies already existing (or perceived) discrimination. To level the playing field, we propose serial dictatorship mechanisms as a strategyproof and stable alternative that is robust to these biases.

Suggested Citation

  • Meisner, Vincent & von Wangenheim, Jonas, 2019. "School Choice and Loss Aversion," Rationality and Competition Discussion Paper Series 208, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:208
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    Cited by:

    1. is not listed on IDEAS
    2. Andrew Kloosterman & Peter Troyan, 2023. "Rankings-Dependent Preferences: A Real Goods Matching Experiment," Papers 2305.03644, arXiv.org, revised Aug 2024.
    3. Karle, Heiko & Schumacher, Heiner & Vølund, Rune, 2023. "Consumer loss aversion and scale-dependent psychological switching costs," Games and Economic Behavior, Elsevier, vol. 138(C), pages 214-237.
    4. Meisner, Vincent, 2021. "Report-Dependent Utility and Strategy-Proofness," Rationality and Competition Discussion Paper Series 289, CRC TRR 190 Rationality and Competition.
    5. Hakimov, Rustamdjan & Kübler, Dorothea, 2021. "Experiments on centralized school choice and college admissions: a survey," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 24(2), pages 434-488.
    6. Vincent Meisner, 2023. "Report-Dependent Utility and Strategy-Proofness," Management Science, INFORMS, vol. 69(5), pages 2733-2745, May.
    7. Tom‡s Larroucau & Ignacio A. Rios & Ana•s Fabre & Christopher Neilson, 2025. "College Application Mistakes and the Design of Information Policies at Scale," Cowles Foundation Discussion Papers 2461, Cowles Foundation for Research in Economics, Yale University.
    8. Bnaya Dreyfuss & Ofer Glicksohn & Ori Heffetz & Assaf Romm, 2022. "Deferred Acceptance with News Utility," NBER Working Papers 30635, National Bureau of Economic Research, Inc.
    9. Jean-Michel Benkert, 2025. "Bilateral trade with loss-averse agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(2), pages 519-560, March.
    10. Balzer, Benjamin & Rosato, Antonio & von Wangenheim, Jonas, 2022. "Dutch vs. first-price auctions with expectations-based loss-averse bidders," Journal of Economic Theory, Elsevier, vol. 205(C).

    More about this item

    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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