Learning dynamics for mechanism design: An experimental comparison of public goods mechanisms

Abstract

In a repeated-interaction public goods economy, dynamic behavior may affect the efficiency of various mechanisms thought to be efficient in one-shot games. Inspired by results obtained in previous experiments, the current paper proposes a simple best response model in which players' beliefs are functions of previous strategy profiles. The predictions of the model are found to be highly consistent with new experimental data from five mechanisms with various types of equilibria. Interesting properties of a 2parameter Vickrey-Clarke-Groves mechanism help to draw out this result. The simplicity of the model makes it useful in predicting dynamic stability of other mechanisms.

Behavioral mechanism design: evidence from the modified first-price auctions

“…A nonlinear adjustment process is preferred over a linear adjustment process, since this allows for a rapid learning in the first rounds. 12 In any case, results do not depend on this specification. We get the same results if we instead add "round."…”

Common-pool resources are intrinsically unstable

“…We estimate the parameter values by fitting the model to the individuals' data in the WGO experiments (we obtained the data through personal communication with Prof. James Walker) to check if the data are consistent with our theory. Healy (2006) provides experimental evidence to support a "k-period average" model, in which players form their beliefs at the current period, based on the observations in the previous k periods. Here, we instead use a time-weighted average to model the belief formation (cf., Cheung and Friedman 1997).…”

“…Experiments provide a hint as to the solution to this problem. In their experiments, Healy (2006) and Healy and Mathevet (2012) implemented five types of public goods mechanisms, including the voluntary contribution mechanism. They found that subjects apparently adopt myopic responses to the decisions by the other players in the previous round, or in some recent rounds.…”

Experimental Social Planners: Good Natured, But Overly Optimistic

“…Healy (2006) shows that participants best respond to the last observation they are making in a repeated game. Güth, Koukoumelis et al (2014) investigate in which ways the reactions of experimental participants to mechanisms depend on them being perceived as fair.…”