Are simple mechanisms optimal when agents are unsophisticated?

• Main Authors: LI, Jiangtao, DWORCZAK, Piotr
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Simple mechanisms; complex mechanisms; robust mechanism design; dominant-strategy mechanisms; obviously strategy-proof mechanisms; strongly obviouslystrategy-proof mechanisms; Economic Theory
• Online Access: https://ink.library.smu.edu.sg/soe_research/2547; https://ink.library.smu.edu.sg/context/soe_research/article/3546/viewcontent/SimpleOptimal__1_.pdf
• Institution: Singapore Management University

We study the design of mechanisms involving agents that have limited strategic sophistication. We define a mechanism to be simple if—given the assumed level of strategic sophistication—agents can determine their optimal strategy. We examine whether it is optimal for the mechanism designer who faces strategically unsophisticated agents to offer a simple mechanism. We show that when the designer uses a mechanism that is not simple, while she loses the ability to predict play, she may nevertheless be better off no matter how agents resolve their strategic confusion