Heterogeneous Beliefs and School Choice Mechanisms
This paper studies how welfare outcomes in centralized school choice depend on the assignment mechanism when participants are not fully informed. Using a survey of school choice participants in a strategic setting, we show that beliefs about admissions chances differ from rational expectations values and predict choice behavior. To quantify the welfare costs of belief errors, we estimate a model of school choice that incorporates subjective beliefs. We evaluate the equilibrium effects of switching to a strategy-proof deferred acceptance algorithm, and of improving households’ belief accuracy. Allowing for belief errors reverses the welfare comparison to favor the deferred acceptance algorithm.
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Document Object Identifier (DOI): 10.3386/w25096