Desirable Properties in Mechanism Design

This module adds the wrinkle that agents must report their preferences to the decision-maker and may lie when doing so. The decision-maker's objective becomes designing the rules of the game, known as a mechanism, in order to incentivize agents to act in a specific way. Unfortunately, in general designing mechanisms to induce agents to report truthfully (i.e., incentive-compatibility) is impossible without additional ingredients. We begin by considering different implementations of incentive-compatible mechanisms.

Elements

1. 4.3.aDominant Strategy Incentive Compatibility

   The ability to select a mechanism wherein a strategy in a dominant strategy equilibrium is to report preferences truthfully.

2. 4.3.bBayesian Incentive Compatibility

   The ability to select a mechanism wherein a strategy in a Bayes–Nash equilibrium is to report preferences truthfully.

3. 4.3.cIndividual Rationality

   The ability to select a mechanism wherein it is in the best interest of the agents to participate in the mechanism.

4. 4.3.dBudget Balanced

   The ability to select a mechanism wherein the mechanism rewards and charges the same amount of money to and from the agents.