Incentive compatibility is not enough: evidence from the Israeli matching market for psychologists, by Hassidim, Romm and Shorrer

While it has taken some time for this paper to be published, I think it was the first to discover that some applicants in a labor market clearinghouse organized as an applicant proposing deferred acceptance algorithm were systematically misrepresenting their preferences, perhaps out of confusion. (This has since been observed in other markets as well.)  Their data are from the Israeli match for psychology graduate programs, which the authors also designed and organized.

Online early in Management Science:

The Limits of Incentives in Economic Matching Procedures
Avinatan Hassidim, Assaf Romm, Ran I. Shorrer
Published Online:13 May 2020
https://doi.org/10.1287/mnsc.2020.3591

Abstract: Organizations often require agents’ private information to achieve critical goals such as efficiency or revenue maximization, but frequently it is not in the agents’ best interest to reveal this information. Strategy-proof mechanisms give agents incentives to truthfully report their private information. In the context of matching markets, they eliminate agents’ incentives to misrepresent their preferences. We present direct field evidence of preference misrepresentation under the strategy-proof deferred acceptance in a high-stakes matching environment. We show that applicants to graduate programs in psychology in Israel often report that they prefer to avoid receiving funding, even though the mechanism preserves privacy and funding comes with no strings attached and constitutes a positive signal of ability. Surveys indicate that other kinds of preference misrepresentation are also prevalent. Preference misrepresentation in the field is associated with weaker applicants. Our findings have important implications for practitioners designing matching procedures and for researchers who study them.