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Are simple mechanisms optimal when agents are unsophisticated?

Author

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  • Jiangtao Li

    (National University of Singapore)

  • Piotr Dworczak

    (Group for Research in Applied Economics (GRAPE)
    Northwestern University)

Abstract

We study the design of mechanisms involving agents that have limited strategic sophistication. The literature has identified several notions of simple mechanisms in which agents can determine their optimal strategy even if they lack cognitive skills such as predicting other agents' strategies (strategy-proof mechanisms), contingent reasoning (obviously strategy-proof mechanisms), or foresight (strongly obviously strategy-proof mechanisms). We examine whether it is optimal for the mechanism designer who faces strategically unsophisticated agents to offer a mechanism from the corresponding class of simple mechanisms. We show that when the designer uses a mechanism that is not simple, while she loses the ability to predict play, she may nevertheless be better off no matter how agents resolve their strategic confusion.

Suggested Citation

  • Jiangtao Li & Piotr Dworczak, 2020. "Are simple mechanisms optimal when agents are unsophisticated?," GRAPE Working Papers 42, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:42
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    File URL: http://grape.org.pl/WP/42_Dworczak_website.pdf
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    References listed on IDEAS

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    Cited by:

    1. Marek Pycia & Peter Troyan, 2021. "A theory of simplicity in games and mechanism design," ECON - Working Papers 393, Department of Economics - University of Zurich.
    2. Noga Alon & Kirill Rudov & Leeat Yariv, 2021. "Dominance Solvability in Random Games," Working Papers 2021-84, Princeton University. Economics Department..
    3. Clayton Thomas, 2020. "Classification of Priorities Such That Deferred Acceptance is Obviously Strategyproof," Papers 2011.12367, arXiv.org, revised Feb 2021.
    4. Marek Pycia & Peter Troyan, 2023. "A Theory of Simplicity in Games and Mechanism Design," Econometrica, Econometric Society, vol. 91(4), pages 1495-1526, July.
    5. Mariya Halushka, 2021. "Obviously Strategy-proof Mechanism Design With Rich Private Information," Working Papers 2104E, University of Ottawa, Department of Economics.

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    More about this item

    Keywords

    Simple mechanisms; complex mechanisms; robust mechanism design; dominant-strategy mechanisms; obviously strategy-proof mechanisms; strongly obviously strategy-proof mechanisms;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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