DOCSLIB.ORG

1 Essays in Mechanism Design and Implementation Theory Dissertation

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text

Load more

Essays in Mechanism Design and Implementation Theory Dissertation Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Ritesh Jain Graduate Program in Economics The Ohio State University 2018 Dissertation Committee: Paul J Healy, Advisor Yaron Azrieli James Peck 1 Copyrighted by Ritesh Jain 2018 2 Abstract I broadly classify my research in micro-economic theory. This dissertation brings together my work in mechanism design and implementation theory. Mechanisms, (Jointly with Paul Healy) we study Nash implementation in public goods setting. Groves and Ledyard (1977) construct a mechanism for public goods procurement that can be viewed as a direct- revelation Groves mechanism in which agents announce a parameter of a quadratic approximation of their true preferences. The mechanism's Nash equilibrium outcomes are efficient. The budget is balanced because Groves mechanisms are balanced for the announced quadratic preferences. Tian (1996) subsequently discovered a richer set of budget-balancing preferences. We replicate the Groves-Ledyard construction using this expanded set of preferences, and uncover a new set of complex mechanisms that generalize the original Groves-Ledyard mechanism. In Chapter 2 titled Symmetric Mechanism Design, (Jointly with Yaron Azrieli) we study the extent to which regulators can guarantee fair outcomes by a policy requiring mechanisms to treat agents symmetrically. This is an exercise in mechanism design. Our main result is a characterization of the class of social choice functions that can be implemented under this constraint. In many environments, extremely discriminatory social choice functions can be implemented by symmetric mechanisms, but there are also cases ii in which symmetry is binding. Our characterization is based on a `revelation principle' type of result, where we show that a social choice function can be symmetrically implemented if and only if a particular kind of (indirect) symmetric mechanism implements it. We illustrate the result in environments of voting with private values, voting with a common value, and assignment of indivisible goods. In Chapter 3 titled Rationalizable Implementation of Social Choice Correspondences, I study the implementation of social choice correspondences (SCC), in a complete information setting, using rationalizability as the solution concept. I find a condition which I call r-monotonicity to be necessary for the rationalizable implementation of an SCC. r- monotonicity is strictly weaker than Maskin monotonicity, a condition introduced by Maskin (1999). If an SCC satisfies a no worst alternative condition and a condition which F- distinguishability, then it is shown that r-monotonicity is also sufficient for rationalizable implementation. We discuss the strength of these additional conditions. In particular, I find that, whenever there are more than 3 agents a social choice correspondence, which always selects at least two alternatives is rationalizably implementable if and only if it satisfies r-monotonicity. This paper, therefore, extends Bergemann et al. (2011) to the case of social choice correspondences. iii To my family iv Acknowledgments I am deeply indebted to Paul Healy and Yaron Azrieli for being inspirations for me in academia and beyond. They have been instrumental in helping conceptualize, write and rewrite the chapters in this dissertation. I thank James Peck for numerous conversations and comments which have helped shaped this dissertation. v Vita 2009................................................................B.A. in Economics, University of Delhi, India 2011................................................................M.A. in Economics, Jawaharlal Nehru University, New Delhi, India 2013................................................................M.A. in Economics, The Ohio State University, Columbus, OH 2013 to 2018 .................................................Graduate Associate, Department of Economics, The Ohio State University, Columbus, OH Fields of Study Major Field: Economics vi Table of Contents Abstract ............................................................................................................................... ii Dedication .......................................................................................................................... iv Acknowledgments............................................................................................................... v Vita ..................................................................................................................................... vi List of Tables ................................................................................................................... viii Chapter 1. Generalized Groves Ledyard Mechanisms ....................................................... 1 Chapter 2. Symmetric Mechanism Design ...................................................................... 20 Chapter 3. Rationalizable Implementation of Social Choice Correspondences .............. 50 References ......................................................................................................................... 78 Appendix for Chapter 1 .................................................................................................... 84 Appendix for Chapter 2 .................................................................................................... 91 Appendix for Chapter 3 .................................................................................................... 95 vii List of Tables Table 1 Preferences in Example 4 .................................................................................... 50 Table 2 Preferences in Example 5 .................................................................................... 58 Table 3 Preferences in Example 6 .................................................................................... 59 Table 4 Preferences in Example 10 .................................................................................. 75 Table 5 Preferences in Example 11 ................................................................................ 106 viii Chapter 1: Generalized Groves Ledyard Mechanism 1 Introduction Groves and Ledyard (1977) provided one of the first decentralized economic mechanisms to solve the free rider problem for general economies. Specifically, they devised a gov- ernment (or, mechanism) such that self-interested equilibrium behavior by all parties always leads to a Pareto optimal allocation. This work has been cited widely, with many researchers building off its original insights. What has not been appreciated, however, is the manner in which Groves and Ledyard (1977) actually construct their mechanism. The final mechanism looks simple: players announce a single number, and taxes are based on an proportional share of the cost and a quadratic penalty. In fact, the mechanism has a more complex foundation: Groves and Ledyard (1977) present it as being derived from a Groves mechanism (Groves, 1973) in which agents announce entire quasilinear utility functions and are taxed (or rewarded) based on the Marshallian surplus calculated from the announced preferences of all other agents in the economy. But agents may not actually have quasilinear preferences, so these announcements represents approximations of their true preferences. The space of allowable announcements is parameterized with a single parameter, which greatly simpli- fies agents' messages. In equilibrium, agents with non-quasilinear preferences announce quasilinear preferences that best approximate their true willingness to pay at the Pareto optimal allocation, and that allocation is selected by the mechanism.1 What is crucial to the Groves-cum-Groves-Ledyard construction is that the set of approximating preferences that the agents are allowed to announce always generate a budget-balanced allocation in the Groves mechanism. Budget balance does not always obtain with general quasilinear preferences; Groves and Loeb (1975) showed that balance is achieved if we further restrict agents to quadratic valuation functions. Following this 1Groves (1973) mechanisms are usually only discussed in settings where all agents actually have quasilinear preferences, and therefore have a dominant strategy of truthful revelation. Groves and Ledyard (1977) are novel in that they consider the Groves mechanism for more general preferences. 1 insight, Groves and Ledyard (1977) only allow agents to announce quadratic (approxi- mate) preferences, guaranteeing that the final allocation will balance the budget. Agents need only to announce the intercept of their (approximate) valuation function, and are charged according to the balanced Groves mechanism. Algebraic manipulation reveals that these outcome and tax functions reduce to the familiar Groves-Ledyard mechanism with its quadratic form. For two decades it was believed that quadratic preferences are the only ones for which a Groves mechanism could be budget balanced.2 This belief was overturned when Tian (1996) discovered a much richer class of preferences for which Groves mechanisms can be balanced. And, like the quadratic preferences, these are parameterized by a single parameter. In this paper we replicate the Groves-Ledyard procedure of turning a Groves mecha- nism into a one-dimensional, budget-balanced, Pareto efficient mechanism, but we do so on Tian's larger domain of preferences.
Recommended publications
  • Embezzlement and Guilt Aversion Giuseppe Attanasi, Claire Rimbaud, Marie Claire Villeval

    Embezzlement and Guilt Aversion Giuseppe Attanasi, Claire Rimbaud, Marie Claire Villeval

    Embezzlement and Guilt Aversion Giuseppe Attanasi, Claire Rimbaud, Marie Claire Villeval To cite this version: Giuseppe Attanasi, Claire Rimbaud, Marie Claire Villeval. Embezzlement and Guilt Aversion. 2018. halshs-01779145 HAL Id: halshs-01779145 https://halshs.archives-ouvertes.fr/halshs-01779145 Preprint submitted on 26 Apr 2018 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. WP 1807 – April 2018 Embezzlement and Guilt Aversion Giuseppe Attanasi, Claire Rimbaud, Marie Claire Villeval Abstract: Donors usually need intermediaries to transfer their donations to recipients. A risk is that donations can be embezzled before they reach the recipients. Using psychological game theory, we design a novel three- player Embezzlement Mini-Game to study whether intermediaries suffer from guilt aversion and whether guilt aversion toward the recipient is stronger than toward the donor. Testing the predictions of the model in a laboratory experiment, we show that the proportion of guilt-averse intermediaries is the same irrespective of the direction of the guilt. However, structural estimates indicate that the effect of guilt on behaviour is higher when the guilt is directed toward the recipient. Keywords: Embezzlement, Dishonesty, Guilt Aversion, Psychological Game Theory, Experiment JEL codes: C91 Embezzlement and Guilt Aversion G.
  • California Institute of Technology

    California Institute of Technology

    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Caltech Authors - Main DIVISION OF THE HUM ANITIES AND SO CI AL SCIENCES CALIFORNIA INSTITUTE OF TECHNOLOGY PASADENA, CALIFORNIA 91125 IMPLEMENTATION THEORY Thomas R. Palfrey � < a: 0 1891 u. "')/,.. () SOCIAL SCIENCE WORKING PAPER 912 September 1995 Implementation Theory Thomas R. Palfrey Abstract This surveys the branch of implementation theory initiated by Maskin (1977). Results for both complete and incomplete information environments are covered. JEL classification numbers: 025, 026 Key words: Implementation Theory, Mechanism Design, Game Theory, Social Choice Implementation Theory* Thomas R. Palfrey 1 Introduction Implementation theory is an area of research in economic theory that rigorously investi­ gates the correspondence between normative goals and institutions designed to achieve {implement) those goals. More precisely, given a normative goal or welfare criterion for a particular class of allocation pro blems (or domain of environments) it formally char­ acterizes organizational mechanisms that will guarantee outcomes consistent with that goal, assuming the outcomes of any such mechanism arise from some specification of equilibrium behavior. The approaches to this problem to date lie in the general domain of game theory because, as a matter of definition in the implementation theory litera­ ture, an institution is modelled as a mechanism, which is essentially a non-cooperative game. Moreover, the specific models of equilibrium behavior
  • Lecture Notes

    Lecture Notes

    GRADUATE GAME THEORY LECTURE NOTES BY OMER TAMUZ California Institute of Technology 2018 Acknowledgments These lecture notes are partially adapted from Osborne and Rubinstein [29], Maschler, Solan and Zamir [23], lecture notes by Federico Echenique, and slides by Daron Acemoglu and Asu Ozdaglar. I am indebted to Seo Young (Silvia) Kim and Zhuofang Li for their help in finding and correcting many errors. Any comments or suggestions are welcome. 2 Contents 1 Extensive form games with perfect information 7 1.1 Tic-Tac-Toe ........................................ 7 1.2 The Sweet Fifteen Game ................................ 7 1.3 Chess ............................................ 7 1.4 Definition of extensive form games with perfect information ........... 10 1.5 The ultimatum game .................................. 10 1.6 Equilibria ......................................... 11 1.7 The centipede game ................................... 11 1.8 Subgames and subgame perfect equilibria ...................... 13 1.9 The dollar auction .................................... 14 1.10 Backward induction, Kuhn’s Theorem and a proof of Zermelo’s Theorem ... 15 2 Strategic form games 17 2.1 Definition ......................................... 17 2.2 Nash equilibria ...................................... 17 2.3 Classical examples .................................... 17 2.4 Dominated strategies .................................. 22 2.5 Repeated elimination of dominated strategies ................... 22 2.6 Dominant strategies ..................................
  • Implementation Theory*

    Implementation Theory*

    Chapter 5 IMPLEMENTATION THEORY* ERIC MASKIN Institute for Advanced Study, Princeton, NJ, USA TOMAS SJOSTROM Department of Economics, Pennsylvania State University, University Park, PA, USA Contents Abstract 238 Keywords 238 1. Introduction 239 2. Definitions 245 3. Nash implementation 247 3.1. Definitions 248 3.2. Monotonicity and no veto power 248 3.3. Necessary and sufficient conditions 250 3.4. Weak implementation 254 3.5. Strategy-proofness and rich domains of preferences 254 3.6. Unrestricted domain of strict preferences 256 3.7. Economic environments 257 3.8. Two agent implementation 259 4. Implementation with complete information: further topics 260 4.1. Refinements of Nash equilibrium 260 4.2. Virtual implementation 264 4.3. Mixed strategies 265 4.4. Extensive form mechanisms 267 4.5. Renegotiation 269 4.6. The planner as a player 275 5. Bayesian implementation 276 5.1. Definitions 276 5.2. Closure 277 5.3. Incentive compatibility 278 5.4. Bayesian monotonicity 279 * We are grateful to Sandeep Baliga, Luis Corch6n, Matt Jackson, Byungchae Rhee, Ariel Rubinstein, Ilya Segal, Hannu Vartiainen, Masahiro Watabe, and two referees, for helpful comments. Handbook of Social Choice and Welfare, Volume 1, Edited by K.J Arrow, A.K. Sen and K. Suzumura ( 2002 Elsevier Science B. V All rights reserved 238 E. Maskin and T: Sj'str6m 5.5. Non-parametric, robust and fault tolerant implementation 281 6. Concluding remarks 281 References 282 Abstract The implementation problem is the problem of designing a mechanism (game form) such that the equilibrium outcomes satisfy a criterion of social optimality embodied in a social choice rule.
  • Public Goods Agreements with Other-Regarding Preferences

    Public Goods Agreements with Other-Regarding Preferences

    NBER WORKING PAPER SERIES PUBLIC GOODS AGREEMENTS WITH OTHER-REGARDING PREFERENCES Charles D. Kolstad Working Paper 17017 http://www.nber.org/papers/w17017 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 May 2011 Department of Economics and Bren School, University of California, Santa Barbara; Resources for the Future; and NBER. Comments from Werner Güth, Kaj Thomsson and Philipp Wichardt and discussions with Gary Charness and Michael Finus have been appreciated. Outstanding research assistance from Trevor O’Grady and Adam Wright is gratefully acknowledged. Funding from the University of California Center for Energy and Environmental Economics (UCE3) is also acknowledged and appreciated. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2011 by Charles D. Kolstad. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Public Goods Agreements with Other-Regarding Preferences Charles D. Kolstad NBER Working Paper No. 17017 May 2011, Revised June 2012 JEL No. D03,H4,H41,Q5 ABSTRACT Why cooperation occurs when noncooperation appears to be individually rational has been an issue in economics for at least a half century. In the 1960’s and 1970’s the context was cooperation in the prisoner’s dilemma game; in the 1980’s concern shifted to voluntary provision of public goods; in the 1990’s, the literature on coalition formation for public goods provision emerged, in the context of coalitions to provide transboundary pollution abatement.
  • Experimental Evidence of Dictator and Ultimatum Games

    Experimental Evidence of Dictator and Ultimatum Games

    games Article How to Split Gains and Losses? Experimental Evidence of Dictator and Ultimatum Games Thomas Neumann 1, Sabrina Kierspel 1,*, Ivo Windrich 2, Roger Berger 2 and Bodo Vogt 1 1 Chair in Empirical Economics, Otto-von-Guericke-University Magdeburg, Postbox 4120, 39016 Magdeburg, Germany; [email protected] (T.N.); [email protected] (B.V.) 2 Institute of Sociology, University of Leipzig, Beethovenstr. 15, 04107 Leipzig, Germany; [email protected] (I.W.); [email protected] (R.B.) * Correspondence: [email protected]; Tel.: +49-391-6758205 Received: 27 August 2018; Accepted: 3 October 2018; Published: 5 October 2018 Abstract: Previous research has typically focused on distribution problems that emerge in the domain of gains. Only a few studies have distinguished between games played in the domain of gains from games in the domain of losses, even though, for example, prospect theory predicts differences between behavior in both domains. In this study, we experimentally analyze players’ behavior in dictator and ultimatum games when they need to divide a monetary loss and then compare this to behavior when players have to divide a monetary gain. We find that players treat gains and losses differently in that they are less generous in games over losses and react differently to prior experiences. Players in the dictator game become more selfish after they have had the experience of playing an ultimatum game first. Keywords: dictator game; ultimatum game; gains; losses; equal split; experimental economics 1. Introduction Economists and social scientists have collected an increasing body of literature on the importance of other-regarding preferences for decision-making in various contexts [1].
  • Stability and Nash Implementation in Matching Markets with Couples

    Stability and Nash Implementation in Matching Markets with Couples

    09-017 Stability and Nash Implementation in Matching Markets with Couples Claus-Jochen Haake Bettina Klaus Copyright © 2008 by Claus-Jochen Haake and Bettina Klaus Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author. Stability and Nash Implementation in Matching Markets with Couples∗ Claus-Jochen Haakey Bettina Klausz August 2008 Abstract We consider two-sided matching markets with couples. First, we extend a result by Klaus and Klijn (2005, Theorem 3.3) and show that for any weakly responsive couples market there always exists a \double stable" matching, i.e., a matching that is stable for the couples market and for any associated singles market. Second, we show that for weakly responsive couples markets the associated stable correspondence is (Maskin) monotonic and Nash implementable. In contrast, the correspondence that assigns all double stable matchings is neither monotonic nor Nash implementable. JEL classification: C62, C78, D78, J41. Keywords: Matching with Couples, (Maskin) Monotonicity, Nash Implementation, Sta- bility, Weakly Responsive Preferences. 1 Introduction We consider two-sided matching markets consisting of medical students (graduates, workers) on one side and of residencies jobs, firms) on the other side. In the medical market as well as in many other labor markets, the number of couples with the same professional interests has been growing. Therefore we focus on labor markets in which both members of couples seek positions. Examples of such labor markets with couples are medical markets where each year many medical school graduates seek their first employment as residents or interns.
  • Endogenous Institutions and Game-Theoretic Analysis

    Endogenous Institutions and Game-Theoretic Analysis

    Chapter 5 Endogenous Institutions and Game-theoretic Analysis Chapters 3 and 4 illustrate that restricting the set of admissible institutionalized beliefs is central to the way in which game theory facilitates the study of endogenous institutions. Durkheim (1950 [1895], p. 45) recognized the centrality of institutionalized beliefs, arguing that institutions are “all the beliefs and modes of behavior instituted by the collectivity.” But neither Durkheim nor his followers placed any analytic restrictions on what beliefs the collectivity could institute. Because beliefs are not directly observable, however, deductively restricting them, as game theory lets us do, is imperative. The only beliefs that can be instituted by the collectivity—that can be common knowledge—are those regarding equilibrium (self-enforcing) behavior. Furthermore, the behavior that these beliefs motivate should reproduce—not refute or erode—these beliefs. Game theory thus enables us to place more of the “responsibility for social order on the individuals who are part of that order” (Crawford and Ostrom 1995, p. 583). Rather than assuming that individuals follow rules, it provides an analytical framework within which it is possible to study the way in which behavior is endogenously generated—how, through their interactions, individuals gain the information, ability, and motivation to follow particular rules of behavior. It allows us to examine, for example, who applies sanctions and rewards that motivate behavior, how those who are to apply them learn or decide which ones to apply, why they do not shirk this duty, and why offenders do not flee to avoid sanctions. The empirical usefulness of the analytical framework of classical game theory is puzzling, however, because this theory rests on seemingly unrealistic assumptions about cognition, information and rationality.
  • Revelation Principles in Multistage Games∗

    Revelation Principles in Multistage Games∗

    Revelation Principles in Multistage Games Takuo Sugaya and Alexander Wolitzky Stanford GSB and MIT September 22, 2017 Abstract We study the revelation principle in multistage games for perfect Bayesian equi- libium and sequential equilibrium. The question of whether or not the revelation principle holds is subtle, as expanding players’ opportunities for communication ex- pands the set of consistent beliefs at off-path information sets. In settings with adverse selection but no moral hazard, Nash, perfect Bayesian, and sequential equilibrium are essentially equivalent, and a virtual-implementation version of the revelation principle holds. In general, we show that the revelation principle holds for weak perfect Bayesian equilibrium and for a stronger notion of perfect Bayesian equilibrium introduced by Myerson (1986). Our main result is that the latter notion of perfect Bayesian equilib- rium is outcome-equivalent to sequential equilibrium when the mediator can tremble; this provides a revelation principle for sequential equilibrium. When the mediator cannot tremble, the revelation principle for sequential equilibrium can fail. Preliminary. Comments Welcome. For helpful comments, we thank Drew Fudenberg, Dino Gerardi, Shengwu Li, Roger Myerson, Alessandro Pavan, Harry Pei, Juuso Toikka, and Bob Wilson. 1 Introduction The revelation principle states that any social choice function that can be implemented by any mechanism can also be implemented by a canonical mechanism where communication between players and the mechanism designer or mediator takes a circumscribed form: players communicate only their private information to the mediator, and the mediator communi- cates only recommended actions to the players. This cornerstone of modern microeconomics was developed by several authors in the 1970s and early 1980s, reaching its most general formulation in the principal-agent model of Myerson (1982), which treats one-shot games with both adverse selection and moral hazard.
  • The Death of Welfare Economics: History of a Controversy

    The Death of Welfare Economics: History of a Controversy

    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Igersheim, Herrade Working Paper The death of welfare economics: History of a controversy CHOPE Working Paper, No. 2017-03 Provided in Cooperation with: Center for the History of Political Economy at Duke University Suggested Citation: Igersheim, Herrade (2017) : The death of welfare economics: History of a controversy, CHOPE Working Paper, No. 2017-03, Duke University, Center for the History of Political Economy (CHOPE), Durham, NC This Version is available at: http://hdl.handle.net/10419/155466 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu The death of welfare economics: History of a controversy by Herrade Igersheim CHOPE Working Paper No. 2017-03 January 2017 Electronic copy available at: https://ssrn.com/abstract=2901574 The death of welfare economics: history of a controversy Herrade Igersheim December 15, 2016 Abstract.
  • Bounded Rationality in Bargaining Games: Do Proposers Believe That Responders Reject an Equal Split?

    Bounded Rationality in Bargaining Games: Do Proposers Believe That Responders Reject an Equal Split?

    No. 11 UNIVERSITY OF COLOGNE WORKING PAPER SERIES IN ECONOMICS BOUNDED RATIONALITY IN BARGAINING GAMES: DO PROPOSERS BELIEVE THAT RESPONDERS REJECT AN EQUAL SPLIT? BEN GREINER Department of Economics University of Cologne Albertus-Magnus-Platz D-50923 Köln Germany http://www.wiso.uni-koeln.de Bounded Rationality in Bargaining Games: Do Proposers Believe That Responders Reject an Equal Split?∗ Ben Greiner† June 19, 2004 Abstract Puzzled by the experimental results of the ’impunity game’ by Bolton & Zwick (1995) we replicate the game and alter it in a systematic manner. We find that although almost nobody actually rejects an offered equal split in a bargaining game, proposers behave as if there would be a considerably large rejection rate for equal splits. This result is inconsistent with existing models of economic decision making. This includes models of selfish play- ers as well as models of social utility and reciprocity, even when combined with erroneous decision making. Our data suggests that subjects fail to foresee their opponent’s decision even for one step in our simple bargaining games. We consider models of bounded rational decision making such as rules of thumb as explanations for the observed behavioral pattern. Keywords: ultimatum game, dictator game, impunity game, social utility, bounded rationality JEL Classification: C72, C92, D3 ∗I thank Bettina Bartels, Hakan Fink and Ralica Gospodinova for research assistance, the Strategic Interaction Group at MPI Jena for comments and serving as pilot participants, especially Susanne B¨uchner, Sven Fischer, Katinka Pantz and Carsten Schmidt for support in the conduction of the experiment, and Werner G¨uth, Axel Ockenfels, Ro’i Zultan, participants at the European ESA Meeting in Erfurt and at the Brown Bag seminars in Jena and Cologne for discussions and valuable comments.
  • The Revelation Principle for Mechanism Design with Reporting Costs

    The Revelation Principle for Mechanism Design with Reporting Costs

    The Revelation Principle for Mechanism Design with Reporting Costs ANDREW KEPHART, Duke University VINCENT CONITZER, Duke University The revelation principle is a key tool in mechanism design. It allows the designer to restrict attention to the class of truthful mechanisms, greatly facilitating analysis. This is also borne out in an algorithmic sense, al- lowing certain computational problems in mechanism design to be solved in polynomial time. Unfortunately, when not every type can misreport every other type (the partial verification model), or—more generally— misreporting can be costly, the revelation principle can fail to hold. This also leads to NP-hardness results. The primary contribution of this paper consists of characterizations of conditions under which the revelation principle still holds when misreporting can be costly. (These are generalizations of conditions given earlier for the partial verification case [Green and Laffont 1986; Yu 2011].) We also study associated computational problems. Additional Key Words and Phrases: automated mechanism design, signaling costs, partial verification, rev- elation principle 1. INTRODUCTION Mechanism design concerns making decisions based on the private information of one or more agents, who will not report this information truthfully if they do not see this to be in their interest. The goal is to define a mechanism—a game to be played by the agent(s)—that defines actions for the agents to take and maps these actions to outcomes, such that in equilibrium, the agents’ true types map to outcomes as de- sired. This may, at first, appear to leave us in the unmanageable situation of having to search through all possible games we could define.