Correlation Neglect in Student-to-School Matching

Abstract

A growing body of evidence suggests that decision-makers fail to account for correlation in signals that they receive. We study the relevance of this mistake in students' interactions with school-choice matching mechanisms. In a lab experiment presenting simple and incentivized school-choice scenarios, we find that subjects tend to follow optimal application strategies when schools' admissions decisions are determined independently. However, when schools rely on a common priority—inducing correlation in admissions—decision making suffers: application strategies become substantially more aggressive and fail to include attractive “safety” options. We document that this pattern holds even within-subject, with significant fractions of participants applying to different programs when correlation is varied but all payoff-relevant elements are held constant. We provide a battery of tests suggesting that this phenomenon is at least partially driven by correlation neglect, and we discuss implications that arise for the design and deployment of student-to-school matching mechanisms. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.