Mechanism design
Designing the rules of a game so that self-interested players, acting on private information, produce the outcome the designer wants.
Often misread asDesigning rules that would work if people reported honestly, and treating dishonesty as an enforcement problem to be handled afterwards.
How to see it
Choosing the game instead of solving it
Ordinary game theory takes the rules as given and works out what players will do. Mechanism design runs that backwards: you say what outcome you want, then ask what rules would lead self interested people, each hiding something you need to know, to produce it of their own accord.
The checkThe reports are a move in the game you designed. If honesty is not in the participant's interest under your rules, the rules are wrong, not the participant.
Try itPropose splitting a shared cost by asking each department how much they value the service. Then sit in a department's chair and ask what you would say. If the answer is not your true number, you have designed a mechanism that does not work.
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.
- Laffont, J-J. & Martimort, D. (2002). Princeton University Press.