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Mechanism design and incentive compatibility

Mechanism design and incentive compatibility The current issue and full text archive of this journal is available at www.emeraldinsight.com/1753-8254.htm Mechanism EDUCATION BRIEFING design Mechanism design and incentive compatibility 1. What is mechanism design and incentive compatibility? Mechanism design is the reverse engineering of game theory. In game theory, we are given a particular game, i.e. a set of agents, set of actions they can take, and resulting utility from actions. The objective of game theory is to predict the outcome of a given game. But, what if we are given an outcome, and asked to design a game that generates this outcome? The study of mechanism design deals with such design of games. In mechanism design, one has a particular objective in mind – efficiency, revenue maximization, etc. How can we design a game such that when strategic agents interact, the equilibrium outcome is the objective we have in mind? For example, consider the recently concluded auction of players for the Indian Premier League (IPL), a cricket league in India. The particular format of the auction was decided by the IPL board. Suppose, the IPL board had a particular objective in mind – maximize revenue from IPL games or maximize utility of teams. Then, http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

Mechanism design and incentive compatibility

Indian Growth and Development Review , Volume 2 (2): 5 – Sep 25, 2009

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1753-8254
DOI
10.1108/17538250910992595
Publisher site
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Abstract

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1753-8254.htm Mechanism EDUCATION BRIEFING design Mechanism design and incentive compatibility 1. What is mechanism design and incentive compatibility? Mechanism design is the reverse engineering of game theory. In game theory, we are given a particular game, i.e. a set of agents, set of actions they can take, and resulting utility from actions. The objective of game theory is to predict the outcome of a given game. But, what if we are given an outcome, and asked to design a game that generates this outcome? The study of mechanism design deals with such design of games. In mechanism design, one has a particular objective in mind – efficiency, revenue maximization, etc. How can we design a game such that when strategic agents interact, the equilibrium outcome is the objective we have in mind? For example, consider the recently concluded auction of players for the Indian Premier League (IPL), a cricket league in India. The particular format of the auction was decided by the IPL board. Suppose, the IPL board had a particular objective in mind – maximize revenue from IPL games or maximize utility of teams. Then,

Journal

Indian Growth and Development ReviewEmerald Publishing

Published: Sep 25, 2009

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