Loss aversion in strategy-proof school-choice mechanisms

Evidence suggests that participants in strategy-proof matching mechanisms play dominated strategies. To explain the data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria. We find non-truthful preference submissions can be strictly optimal if only they are top-rank monotone. In equilibrium, inefficiency or justified envy may arise seemingly stable efficient mechanisms. Specifically, students who more averse less confident than their peers obtain suboptimal allocations.