Strategically Simple Mechanisms

Abstract

We define and investigate a property of mechanisms that we call “strategic simplicity,” and that is meant to capture the idea that, in strategically simple mechanisms, strategic choices require limited strategic sophistication. We define a mechanism to be strategically simple if choices can be based on first‐order beliefs about the other agents' preferences and first‐order certainty about the other agents' rationality alone, and there is no need for agents to form higher‐order beliefs, because such beliefs are irrelevant to the optimal strategies. All dominant strategy mechanisms are strategically simple. But many more mechanisms are strategically simple. In particular, strategically simple mechanisms may be more flexible than dominant strategy mechanisms in the bilateral trade problem and the voting problem.

A Theory of Simplicity in Games and Mechanism Design

“…12 Also of note is Loertscher and Marx (2020) who study environments with transfers and construct a priorfree obviously strategy-proof mechanism that becomes asymptotically optimal as the number of buyers and sellers grows. A different strategic perspective on simplicity in mechanism design was explored by Börgers and Li (2019). 13 The issue of accounting for the unforeseen is also crucial for the analyses of incomplete contracts (e.g., Maskin and Tirole, 1999) and unawareness (e.g., Karni and Viero, 2013).…”

Pick-an-object Mechanisms

“…Another closely related paper is Börgers and Li (2019). As in our case, they are concerned about some notion of simplicity in mechanisms.…”

Are Simple Mechanisms Optimal when Agents are Unsophisticated?

“…Simple mechanisms: This paper contributes to the design of mechanisms involving strategically unsophisticated agents. While Li (2017), Börgers and Li (2019), and Pycia and Troyan (2019) provide notions of simplicity and the characterizations of simple mechanisms according to these notions, our focus is on the tradeoff between simplicity and optimality, and we examine whether there is a foundation for the use of simple mechanisms from an optimality perspective. 11 Indeed, we show that in many cases, the designer might prefer a mechanism that is not simple.…”

“…Börgers (2017) raises a criticism of the notion of the maxmin foundation: The optimal dominant-strategy mechanism-even with the maxmin 11 Li (2017) and Pycia and Troyan (2019) formulate solution concepts that are stronger than the standard strategy proofness. In contrast, motivated by the observation that for many mechanism design problems, the class of SP mechanisms is quite small and only includes mechanisms that are rather unattractive for the designer, Börgers and Li (2019) propose a class of mechanismsstrategically simple mechanisms-that includes, but is strictly larger than, the set of dominant strategy mechanisms. There are, of course, many dimensions to simplicity.…”