Improving Welfare in Assignment Problems: an Experimental Investigation (pdf) (with Peter Troyan).
"Many institutions face the task of allocating objects (such as university dormitories) to individuals (students) without the use of monetary transfers. A common solution to this problem is the Random Serial Dictatorship (RSD): agents are ordered randomly, and one at a time, each is assigned her favorite good according to her submitted preferences. While RSD provides each agent with a dominant strategy of ranking objects truthfully, it may produce socially undesirable outcomes whereby it is possible to make some agents substantially better off at only a small cost to others. In this paper, we study the prospect of raising welfare in assignment problems by incentivizing agents to report goods they value similarly as indifferent. Specifically, we modify RSD by ordering agents earlier who report more indifference, a method similar to that used by the Stanford Graduate School of Business to assign MBA students to educational trips abroad. While theory predicts weak welfare gains in equilibrium, this requires agents to calculate nontrivial best response strategies that deviate from simple truth-telling. In practice, it is unknown whether agents will be able to find these equilibria and, if they cannot, what the welfare implications of using such mechanisms will be. Motivated by these observations, we run a lab experiment where we find that many agents follow natural heuristics that entail reporting indifferences between objects that are similar in value. Average earnings increase significantly compared to RSD, but the way in which indifference is rewarded can alter the variance in earnings. This suggests that institutions that use RSD can benefit by rewarding indifference, but should choose how to do so carefully."