Inattention and Inequity in School Matching

The attractive properties of the Deferred Acceptance (DA) algorithm rest on the assumption of perfect information. Yet field studies of school matching show that information is imperfect, particularly for disadvantaged students. We model costly strategic learning when schools are ex ante symmetric, agree on their ranking of students, and learning is rationally inattentive. Our analytic solution quantifies how each student’s rank, learning costs and prior beliefs interact to determine their gross and net welfare as well as the extent and form of mistakes they make. In line with the evidence, we find that lower-ranked students are affected disproportionately more by information costs, generally suffering a larger welfare loss than higher-ranked students. Interactions between mechanism design, inattention and inequity are thus of first order importance.