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The Design of Ambiguous Mechanisms

Author

Listed:
  • Alfredo di Tillio
  • Nenad Kos
  • Matthias Messner

Abstract

This article explores the sale of an object to an ambiguity averse buyer. We show that the seller can increase his profit by using an ambiguous mechanism. That is, the seller can benefit from hiding certain features of the mechanism that he has committed to from the agent. We then characterize the profit maximizing mechanisms for the seller and characterize the conditions under which the seller can gain by employing an ambiguous mechanism. Finally, we propose a class of ambiguous mechanisms that are easy to implement and perform better than the best non-ambiguous mechanism.

Suggested Citation

  • Alfredo di Tillio & Nenad Kos & Matthias Messner, 2017. "The Design of Ambiguous Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 237-276.
    • Handle: RePEc:oup:restud:v:84:y:2017:i:1:p:237-276.
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    File URL: http://hdl.handle.net/10.1093/restud/rdw051
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    Citations

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    Cited by:

    1. Takashi Ui, 2023. "Strategic Ambiguity in Global Games," Papers 2303.12263, arXiv.org, revised Mar 2023.
    2. Grant, Simon & Stauber, Ronald, 2022. "Delegation and ambiguity in correlated equilibrium," Games and Economic Behavior, Elsevier, vol. 132(C), pages 487-509.
    3. Eran Hanany & Peter Klibanoff & Sujoy Mukerji, 2020. "Incomplete Information Games with Ambiguity Averse Players," American Economic Journal: Microeconomics, American Economic Association, vol. 12(2), pages 135-187, May.
    4. Kocherlakota, Narayana R. & Song, Yangwei, 2019. "Public goods with ambiguity in large economies," Journal of Economic Theory, Elsevier, vol. 182(C), pages 218-246.
    5. Auster, Sarah & Kellner, Christian, 2022. "Robust bidding and revenue in descending price auctions," Journal of Economic Theory, Elsevier, vol. 199(C).
    6. Gong, Aibo & Ke, Shaowei & Qiu, Yawen & Shen, Rui, 2022. "Robust pricing under strategic trading," Journal of Economic Theory, Elsevier, vol. 199(C).
    7. Pintér, Miklós, 2022. "How to make ambiguous strategies," Journal of Economic Theory, Elsevier, vol. 202(C).
    8. Tang, Rui & Zhang, Mu, 2021. "Maxmin implementation," Journal of Economic Theory, Elsevier, vol. 194(C).
    9. Takashi Ui, 2021. "Strategic Ambiguity in Global Games," Working Papers on Central Bank Communication 032, University of Tokyo, Graduate School of Economics.
    10. Frank Riedel, 2017. "Uncertain Acts in Games," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 34(4), pages 275-292, December.
    11. Evren, Özgür, 2019. "Recursive non-expected utility: Connecting ambiguity attitudes to risk preferences and the level of ambiguity," Games and Economic Behavior, Elsevier, vol. 114(C), pages 285-307.
    12. Kellner, Christian & Le Quement, Mark T., 2017. "Modes of ambiguous communication," Games and Economic Behavior, Elsevier, vol. 104(C), pages 271-292.
    13. Bade, Sophie, 2022. "Dynamic semi-consistency," Games and Economic Behavior, Elsevier, vol. 134(C), pages 117-126.
    14. De Castro, Luciano & Yannelis, Nicholas C., 2018. "Uncertainty, efficiency and incentive compatibility: Ambiguity solves the conflict between efficiency and incentive compatibility," Journal of Economic Theory, Elsevier, vol. 177(C), pages 678-707.
    15. Guo, Huiyi, 2019. "Mechanism design with ambiguous transfers: An analysis in finite dimensional naive type spaces," Journal of Economic Theory, Elsevier, vol. 183(C), pages 76-105.
    16. Bhattacharya, Vivek & Manuelli, Lucas & Straub, Ludwig, 2018. "Imperfect public monitoring with a fear of signal distortion," Journal of Economic Theory, Elsevier, vol. 175(C), pages 1-37.

    More about this item

    Keywords

    Optimal mechanism design; Ambiguity aversion; Incentive compatibility; Individual rationality;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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