In a centralized marketplace that was designed to be simple, we identify participants whose choices are dominated. Using administrative data from Hungary, we show that college applicants make obvious mistakes: they forgo the free opportunity to receive a tuition waiver worth thousands of dollars. At least 10 percent of the applicants made such mistakes in 2013. Costly mistakes have externalities: they transfer tuition waivers from high- to low-socioeconomic status students, and increase the number of students attending college. To shed light on the mechanisms underlying mistakes, we exploit a reform that substantially increased the selectivity of admission with financial aid in some fields of study. Increased admission selectivity raises the likelihood of making obvious mistakes, especially among high-socioeconomic status and low-achieving applicants. Our results suggest that mistakes are more common when their expected cost is lower. Still, the average cost of a mistake in 2013 was 114-365 dollars.
# 17-107/V (2017-11-10)
- Ran I. Shorrer, Pennsylvania State University, United States of America; Sandor Sovago, Vrije Universiteit Amsterdam
- College admissions, dominated strategies, market design, obvious misrepresentation, school choice, strategy-proof
- JEL codes:
- C70, D47, D61, D63