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 2021
• Subjects: Simple mechanisms; Complex mechanisms; Strategic confusion; Robustness; Economic Theory
• Online Access: https://ink.library.smu.edu.sg/soe_research/2548; https://ink.library.smu.edu.sg/context/soe_research/article/3547/viewcontent/3465456.3467606__1_.pdf
• Institution: Singapore Management University

We study the design of mechanisms involving agents that have limited strategic sophistication. The literature has identified several notions of simple mechanisms in which agents can determine their optimal strategy even if they lack cognitive skills such as predicting other agents' strategies (strategy-proof mechanisms), contingent reasoning (obviously strategy-proof mechanisms), or foresight (strongly obviously strategy-proof mechanisms). We examine whether it is optimal for the mechanism designer who faces strategically unsophisticated agents to offer a mechanism from the corresponding class of simple mechanisms. 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.