research-article

Can Market Participants Report Their Preferences Accurately (Enough)?

Authors:

Eric Budish, Judd B. KesslerAuthors Info & Claims

Management Science, Volume 68, Issue 2

Pages 1107 - 1130

https://doi.org/10.1287/mnsc.2020.3937

Published: 01 February 2022 Publication History

Abstract

In mechanism design theory it is common to assume that agents can perfectly report their preferences, even in complex settings in which this assumption strains reality. We experimentally test whether real market participants can report their real preferences for course schedules “accurately enough” for a novel course allocation mechanism, approximate competitive equilibrium from equal incomes (A-CEEI), to realize its theoretical benefits. To use market participants’ real preferences (i.e., rather than artificial “induced preferences” as is typical in market design experiments), we develop a new experimental method. Our method, the “elicited preferences” approach, generates preference data from subjects through a series of binary choices. These binary choices reveal that subjects prefer their schedules constructed under A-CEEI to their schedules constructed under the incumbent mechanism, a bidding points auction, and that A-CEEI reduces envy, suggesting subjects are able to report their preferences accurately enough to realize the efficiency and fairness benefits of A-CEEI. However, preference-reporting mistakes do meaningfully harm mechanism performance. One identifiable pattern of mistakes was that subjects had relatively more difficulty reporting cardinal as opposed to ordinal preference information. The experiment helped to persuade the Wharton School to adopt the new mechanism and helped guide aspects of its practical implementation, especially around preference reporting.

This paper was accepted by Yan Chen, decision analysis.

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Cited By

Budish EGao ROthman ARubinstein AZhang QLeyton-Brown KSamuelson LHartline J(2023)Practical algorithms and experimentally validated incentives for equilibrium-based fair division (A-CEEI)Proceedings of the 24th ACM Conference on Economics and Computation10.1145/3580507.3597809(337-368)Online publication date: 9-Jul-2023
https://dl.acm.org/doi/10.1145/3580507.3597809

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Can Market Participants Report Their Preferences Accurately (Enough)?

Index terms have been assigned to the content through auto-classification.

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cover image Management Science

Management Science Volume 68, Issue 2

February 2022

783 pages

ISSN:0025-1909

DOI:10.1287/mnsc.2022.68.issue-2

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Copyright © 2021, The Author(s).

This work is licensed under a Creative Commons Attribution 4.0 International License. You are free to copy, distribute, transmit and adapt this work, but you must attribute this work as “Management Science. Copyright © 2021 The Author(s). https://doi.org/10.1287/mnsc.2020.3937, used under a Creative Commons Attribution License: https://creativecommons.org/licenses/by/4.0/.”

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Publication History

Published: 01 February 2022

Accepted: 22 September 2020

Received: 31 May 2019

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Cited By

Budish EGao ROthman ARubinstein AZhang QLeyton-Brown KSamuelson LHartline J(2023)Practical algorithms and experimentally validated incentives for equilibrium-based fair division (A-CEEI)Proceedings of the 24th ACM Conference on Economics and Computation10.1145/3580507.3597809(337-368)Online publication date: 9-Jul-2023
https://dl.acm.org/doi/10.1145/3580507.3597809

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