Search and Biased Beliefs in Education Markets

This paper asks how search costs, limited awareness of schools, misperceptions of schools’ attributes, and inaccurate beliefs over unknown schools affect parents’ search and application decisions in Chile’s nationwide school choice process. We combine novel data on search activity with a panel of household surveys, administrative application data, randomized information experiments, and a model of demand and sequential search with subjective beliefs. Parents do not know all schools, misperceive quality ratings of the schools they know and like, and underestimate the number of available schools. Addressing these frictions would raise welfare and cause students to match to schools with higher quality and value added, but search cost reductions alone would lead to lower quality. The effects of information and search-cost reductions are complementary. A model without misperceptions would incorrectly predict that providing full information reduces the quality of chosen schools.