Strategic ‘Mistakes’: Implications for Market Design Research∗

Using a rich data set on Australian college admissions, we show that even in strategically straightforward situations, a non-negligible fraction of applicants adopt strategies that are unambiguously dominated; however, the majority of these ‘mistakes’ are payoff irrelevant. We then propose a new equilibrium solution concept that allows for mistakes. Applying it to a strategy-proof mechanism in which colleges strictly rank applicants, we show that equilibrium strategies need not be truth-telling, but that every equilibrium outcome is asymptotically stable. Our Monte Carlo simulations illustrate the difference between the empirical methods based on truth telling or outcome stability, revealing that the latter is more robust to potential mistakes. Taken together, our results suggest that strategy-proof mechanisms perform reasonably well in real life, although applicants’ mistakes should be taken into account in