Incentive compatibility
The property that every participant does best for themselves by reporting their private information honestly.
Often misread asConfusing it with participation, so a mechanism that leaves everybody better off than staying out is thought to be incentive compatible.
How to see it
Honesty made optimal by the rules
A mechanism is incentive compatible if, given how the rules turn reports into outcomes, no participant can do better by misstating what they privately know. It is a property of the rules, and it has to hold against every possible lie, not just the obvious one.
The checkIncentive compatibility compares honesty against lying for somebody already inside. Participation compares being inside against staying out. A mechanism can be well worth joining and still reward lying once you have joined.
Try itIn a second price auction, check that bidding above your value can only win you something at a price above it, and that bidding below can only lose you something you wanted at a price below it. Having checked both directions you have checked incentive compatibility, not merely that the auction is worth entering.
Know these first
Leads on to
Easily confused with
Sources
- Myerson, R. B. (1981). Mathematics of Operations Research 6(1), 58-73.
- Myerson, R. (1991). Harvard University Press.
- Mas-Colell, A., Whinston, M. & Green, J. (1995). Oxford University Press.