SMU SOE Seminar (Feb 28, 2017): Simple Mechanisms

In this paper we define and investigate a property of mechanisms that we call "simplicity," and that is meant to capture the idea that, in "simple" mechanisms, strategic choices are easy. We define a mechanism to be "simple" if optimal strategy choices can be based on first order beliefs alone, and there is no need for agents to form higher order beliefs because such beliefs are irrelevant to agents' optimal choices. In mechanisms "first order beliefs" are beliefs about other agents' rationality and their utility. "Higher order beliefs" are beliefs about beliefs, beliefs about beliefs about beliefs, etc. In many mechanisms agents who want to make an optimal choice cannot avoid having to form higher order beliefs. But in some mechanisms there is no need for this. These are the mechanisms that we investigate and characterize in this paper. All dominant strategy mechanism are simple. But many more mechanisms are simple. In particular, simple mechanisms may be more flexible than dominant strategy mechanisms in examples such as the bilateral trade problem and the voting problem.

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