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Implementation in adaptive better-response dynamics: Towards a general theory of bounded rationality in mechanisms

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  • Cabrales, Antonio
  • Serrano, Roberto

Abstract

We study the classic implementation problem under the behavioral assumption that agents myopically adjust their actions in the direction of better-responses or best-responses. First, we show that a necessary condition for recurrent implementation in better-response dynamics (BRD) is a small variation of Maskin monotonicity, which we call quasimonotonicity. We also provide a mechanism for implementation in BRD if the rule is quasimonotonic and excludes worst alternatives – no worst alternative (NWA). Quasimonotonicity and NWA are both necessary and sufficient for absorbing implementation in BRD. Moreover, they characterize implementation in strict Nash equilibria. Under incomplete information, incentive compatibility is necessary for any kind of stable implementation in our sense, while Bayesian quasimonotonicity is necessary for recurrent implementation in interim BRD. Both conditions are also essentially sufficient for recurrent implementation, together with a Bayesian NWA. A characterization of implementation in strict Bayesian equilibria is also provided. Partial implementation results are also obtained.

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  • Cabrales, Antonio & Serrano, Roberto, 2011. "Implementation in adaptive better-response dynamics: Towards a general theory of bounded rationality in mechanisms," Games and Economic Behavior, Elsevier, vol. 73(2), pages 360-374.
  • Handle: RePEc:eee:gamebe:v:73:y:2011:i:2:p:360-374 DOI: 10.1016/j.geb.2011.03.003
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    Cited by:

    1. Mezzetti, Claudio & Renou, Ludovic, 2012. "Implementation in mixed Nash equilibrium," Journal of Economic Theory, Elsevier, pages 2357-2375.
    2. Kartik, Navin & Tercieux, Olivier & Holden, Richard, 2014. "Simple mechanisms and preferences for honesty," Games and Economic Behavior, Elsevier, pages 284-290.
    3. Ortner, Juan, 2015. "Direct implementation with minimally honest individuals," Games and Economic Behavior, Elsevier, pages 1-16.
    4. Jason Shachat & Zhenxuan Zhang, 2017. "The Hayek Hypothesis and Long‐run Competitive Equilibrium: An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 127(599), pages 199-228, February.
    5. Raphael Studer & Rainer Winkelmann, 2011. "Specification and Estimation of Rating Scale Models: With an Application to the Determinants of Life Satisfaction," SOEPpapers on Multidisciplinary Panel Data Research 372, DIW Berlin, The German Socio-Economic Panel (SOEP).
    6. Juan-José Ganuza & Jos Jansen, 2013. "Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 845-876, December.
    7. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, pages 557-603.
    8. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    9. Geoffroy de Clippel, 2014. "Behavioral Implementation," American Economic Review, American Economic Association, pages 2975-3002.
    10. Tumennasan, Norovsambuu, 2013. "To err is human: Implementation in quantal response equilibria," Games and Economic Behavior, Elsevier, pages 138-152.
    11. Reischmann, Andreas, 2015. "The Conditional Contribution Mechanism for the Provision of Public Goods," Working Papers 0586, University of Heidelberg, Department of Economics.
    12. Meng, Dawen & Tian, Guoqiang, 2013. "Entry-Deterring Nonlinear Pricing with Bounded Rationality," MPRA Paper 57935, University Library of Munich, Germany, revised May 2014.
    13. Tumennasan, Norovsambuu, 2013. "To err is human: Implementation in quantal response equilibria," Games and Economic Behavior, Elsevier, pages 138-152.
    14. Lee, Jihong & Sabourian, Hamid, 2015. "Complexity and repeated implementation," Journal of Economic Theory, Elsevier, pages 259-292.
    15. Lombardi, Michele & Yoshihara, Naoki, 2012. "Natural Implementation with Partially Honest Agents," Discussion Paper Series 561, Institute of Economic Research, Hitotsubashi University.
    16. Saran, Rene, 2016. "Bounded depths of rationality and implementation with complete information," Journal of Economic Theory, Elsevier, pages 517-564.
    17. Jacob Glazer & Ariel Rubinstein, 2014. "Complex Questionnaires," Econometrica, Econometric Society, vol. 82(4), pages 1529-1541, July.
    18. Kneeland, Terri, 2017. "Mechanism design with level-k types: Theory and an application to bilateral trade," Discussion Papers, Research Unit: Economics of Change SP II 2017-303, Social Science Research Center Berlin (WZB).
    19. Daske, Thomas, 2017. "Externality Assessments, Welfare Judgments, and Mechanism Design," EconStor Preprints 172494, ZBW - German National Library of Economics.
    20. Geoffroy de Clippel & Rene Saran & Roberto Serrano, 2014. "Mechanism Design with Bounded Depth of Reasoning and Small Modeling Mistakes," Working Papers 2014-7, Brown University, Department of Economics.
    21. Xiaochuan Huang & Takehito Masuda & Yoshitaka Okano & Tatsuyoshi Saijo, 2016. "Cooperation among behaviorally heterogeneous players in social dilemma with stay of leave decisions," KIER Working Papers 944, Kyoto University, Institute of Economic Research.
    22. Lombardi Michele & Yoshihara Naoki, 2012. "National implementation with partially honest agents," Research Memorandum 005, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    23. Xiaochuan Huang & Takehito Masuda & Yoshitaka Okano & Tatsuyoshi Saijo, 2014. "Cooperation among behaviorally heterogeneous players in social dilemma with stay or leave decisions," Working Papers SDES-2014-7, Kochi University of Technology, School of Economics and Management, revised Feb 2015.
    24. Kimya, Mert, 2017. "Nash implementation and tie-breaking rules," Games and Economic Behavior, Elsevier, pages 138-146.

    More about this item

    Keywords

    Robust implementation; Bounded rationality; Evolutionary dynamics; Mechanisms;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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