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Lecture by Georgy Artemov (University of Melbourne) in DeCAn lab

On Wednesday, September 14 the all-Russian seminar "Mathematical methods of decision analysis in economics, finance and politics" was held. Professor Georgy Artemov from the University of Melbourne gave a lecture on «Assignment mechanisms: common preferences and information acquisition»

Lecture by Georgy Artemov (University of Melbourne) in DeCAn lab

In this paper I study costly information acquisition in a two-sided matching problem, such as the assignment of students to schools. Each student’s utility from attending a school is a sum of a common and a student-specific components. The common component is known by all students. The student-specific component is unknown to a student, but can be learned at a cost. When an ordinal strategy-proof mechanism, such as Deferred Acceptance (DA), is used, fewer students than socially optimal acquire information (under general conditions). Moreover, the welfare gain from introducing the DA in place of the random assignment may be smaller than the gain from augmenting the DA by policies that achieve the socially optimal level of information acquisition. The DA is often promoted as a replacement of the popular Immediate Acceptance (IA) mechanism. However, because the IA often provides higher incentives to acquire information, the welfare gain from replacing the IA by the DA would be routinely overstated, unless DA is augmented by the policies which promote information acquisition. I discuss some of such policies that are used in real-life school assignments.