Revelation principle
Anything achievable by any set of rules at all can also be achieved by rules under which participants just report honestly.
Anything achievable by any set of rules at all can also be achieved by rules under which participants just report honestly.
Often misread asReading it as advice, so it is taken to say that real mechanisms ought to be direct, or that open auctions and negotiation procedures are pointless elaborations.
How to see it
A tool for proving impossibility, not advice on design
Whatever outcome some clever set of rules produces in equilibrium, there is a simple set of rules producing the very same outcome in which everyone just states their private information and states it honestly. The trick is to absorb the strategic cleverness into the mechanism: the designer does on your behalf whatever you would have done.
The checkIt is a proof device. Its use is that if no truthful direct mechanism can achieve something, then no mechanism of any kind can, which lets you search a small set instead of an infinite one. It says nothing about which mechanism is better to run.
Try itTake a first price auction in which bidders shade to two thirds of their value. Build the direct mechanism that asks for the value and charges the winner two thirds of their report. Check the outcome is identical and honesty is now optimal. Then ask whether you would rather run that or the ordinary auction in a room full of real bidders.
Know these first
When it stops being true
- binding-commitment-available
Easily confused with
Sources
- Myerson, R. B. (1981). Mathematics of Operations Research 6(1), 58-73.
- Gibbard, A. (1973). Econometrica 41(4), 587-601.
- Myerson, R. (1991). Harvard University Press.
- Mas-Colell, A., Whinston, M. & Green, J. (1995). Oxford University Press.