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Free keywords:
market design, mechanism design, randomization
Abstract:
This paper compares two prominent stochastic assignment mechanisms in the laboratory: Random serial dictatorship (RSD) and top trading cycles with random endowments (TTC). In standard theory, both mechanisms are strategy-proof and Pareto-effcient for the house allocation problem without endowments. In the experiment, RSD outperforms TTC. This can be attributed to more dominant strategy play under RSD. The behavioral theory of obvious strategy-proofness can partly explain this difference in dominant strategy play. Generally, subjects with extremely high and low levels of contingent reasoning play their dominant strategies. These results suggest that one strategy-proof mechanism may outperform another one if individuals are boundedly rational.
