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Robust Mechanism Design and Social Preferences

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  • Felix Bierbrauer
  • Axel Ockenfels
  • Andreas Pollak
  • Désirée Rückert

Abstract

We study a classic mechanism design problem: How to organize trade between two privately informed parties. We characterize an optimal mechanism under selfish preferences and present experimental evidence that, under such a mechanism, a non-negligible fraction of individuals deviates from the intended behavior. We show that this can be explained by models of social preferences and introduce the notion of a social-preference-robust mechanism. We characterize an optimal mechanism in this class and present experimental evidence that it successfully controls behavior. We finally show that this mechanism is more profitable only if deviations from selfish behavior are sufficiently frequent.

Suggested Citation

  • Felix Bierbrauer & Axel Ockenfels & Andreas Pollak & Désirée Rückert, 2014. "Robust Mechanism Design and Social Preferences," CESifo Working Paper Series 4713, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4713
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    References listed on IDEAS

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    Cited by:

    1. Bartling, Björn & Netzer, Nick, 2016. "An externality-robust auction: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 97(C), pages 186-204.
    2. Mass, Helene & Fugger, Nicolas & Gretschko, Vitali & Wambach, Achim, 2017. "Imitation perfection - a simple rule to prevent discrimination in procurement," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168217, Verein für Socialpolitik / German Economic Association.
    3. Hoffmann, Timo & Renes, Sander, 2016. "Flip a coin or vote : an Experiment on choosing group decision," Working Papers 16-11, University of Mannheim, Department of Economics.
    4. Daske, Thomas, 2017. "Externality Assessments, Welfare Judgments, and Mechanism Design," EconStor Preprints 172494, ZBW - German National Library of Economics.

    More about this item

    Keywords

    robust mechanism design; social preferences; bilateral trade;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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