Are simple mechanisms optimal when agents are unsophisticated?

Jiangtao Li and Piotr Dworczak
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Jiangtao Li: National University of Singapore

No 42, GRAPE Working Papers from GRAPE Group for Research in Applied Economics

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.

Keywords: Simple mechanisms; complex mechanisms; robust mechanism design; dominant-strategy mechanisms; obviously strategy-proof mechanisms; strongly obviously strategy-proof mechanisms (search for similar items in EconPapers)
JEL-codes: D71 D82 D86 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2020
New Economics Papers: this item is included in nep-cbe, nep-des, nep-mic, nep-ore and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:fme:wpaper:42

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