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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.
    • Handle: RePEc:ces:ceswps:_4713
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    10. Dufwenberg, Martin & Kirchsteiger, Georg, 2019. "Modelling kindness," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 228-234.
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    More about this item

    Keywords

    robust mechanism design; social preferences; bilateral trade;
    All these keywords.

    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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