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This paper generalizes the concept of Bayes' correlated equilibrium Bergemann and Morris (2016) to multistage games. We apply our characterization results to a number of illustrative examples and applications. [ABSTRACT FROM AUTHOR]

This paper studies the issue of advertising outsourcing and production planning for a manufacturer facing asymmetric advertising cost and uncertain market demand. To improve product sales, a manufacturer would hire an advertising agency to provide professional service on product advertising before the production takes place. A contract taking into account both advertising effort level and payment is introduced to incentivize the advertising agency to report the exact cost to the manufacturer. Furthermore, a model with the goal of maximising the manufacturer's net profit is proposed, in which both product demand and payment to the advertising agency are affected by the advertising effort level. Analytical solutions of the optimal strategies including the optimal advertising effort level and the optimal payment to the advertising agency are derived. Optimal retail price and the optimal production quantity are also obtained for the manufacturer in making managerial decisions. [ABSTRACT FROM AUTHOR]

We develop a tool akin to the revelation principle for dynamic mechanism‐selection games in which the designer can only commit to short‐term mechanisms. We identify a canonical class of mechanisms rich enough to replicate the outcomes of any equilibrium in a mechanism‐selection game between an uninformed designer and a privately informed agent. A cornerstone of our methodology is the idea that a mechanism should encode not only the rules that determine the allocation, but also the information the designer obtains from the interaction with the agent. Therefore, how much the designer learns, which is the key tension in design with limited commitment, becomes an explicit part of the design. Our result simplifies the search for the designer‐optimal outcome by reducing the agent's behavior to a series of participation, truth telling, and Bayes' plausibility constraints the mechanisms must satisfy. [ABSTRACT FROM AUTHOR]

We describe prerequisites for the emergence of the key concept of incentive compatibility in the theory of active systems and mechanism design and give a survey of approaches to this problem, which have led to stating the fair play and revelation principles, and of current trends in this branch of scientific knowledge. Potential difficulties and development prospects are discussed. [ABSTRACT FROM AUTHOR]

We introduce two novel matching mechanisms, Reverse Top Trading Cycles (RTTC) and Reverse Deferred Acceptance (RDA), with the purpose of challenging the idea that the theoretical property of strategy-proofness induces high rates of truth-telling in economic experiments. RTTC and RDA are identical to the celebrated Top Trading Cycles (TTC) and Deferred Acceptance (DA) mechanisms, respectively, in all their theoretical properties except that their dominant-strategy equilibrium is to report one's preferences in the order opposite to the way they were induced. With the focal truth-telling strategy being out of equilibrium, we are able to perform a clear measurement of how much of the truth-telling reported for strategy-proof mechanisms is compatible with rational behaviour and how much of it is caused by confused decision-makers following a default, focal strategy without understanding the structure of the game. In a school-allocation setting, we find that roughly half of the observed truth-telling under TTC and DA is the result of naïve (non-strategic) behaviour. Only 14–31% of the participants choose actions in RTTC and RDA that are compatible with rational behaviour. Furthermore, by looking at the responses of those seemingly rational participants in control tasks, it becomes clear that most lack a basic understanding of the incentives of the game. We argue that the use of a default option, confusion and other behavioural biases account for the vast majority of truthful play in both TTC and DA in laboratory experiments. [ABSTRACT FROM AUTHOR]

We consider probabilistic versions of obviously strategy-proof implementation (Li, 2017) for stochastic rules, and provide an algorithm involving several ideas from the literature (Ashlagi and Gonczarowski, 2018 ; Pycia and Troyan, 2016 ; Bade and Gonczarowski, 2017) that converts any such implementation into a randomized round table implementation , where the administrator randomly selects a game form in which agents take turns making public announcements about their private information (Theorem 1). We provide an analogous algorithm for sure implementation of deterministic rules (Theorem 2); this builds on related results from the literature by (i) relaxing all recall requirements, (ii) allowing randomization by the agents, and (iii) allowing all game trees for which choices determine plays (Alós-Ferrer and Ritzberger, 2016). We discuss a variety of implications and related topics. [ABSTRACT FROM AUTHOR]

This paper addresses how hard evidence can be incorporated intomechanismdesign analysis. Two classes of models are compared: (a) ones in which evidentiary decisions are accounted for explicitly, and (b) ones in which the players make abstract declarations of their types. Conditions are provided under which versions of these models are equivalent. The paper also addresses whether dynamic mechanisms are required for Nash implementation in settings with hard evidence. The paper shows that static mechanisms suffice in the setting of “evidentiary normality” and that, in a more general environment, one can restrict attention to a class of three-stage dynamic mechanisms.

In this letter, an incentive compatible contract is designed for purchasing energy and ancillary service (AS) simultaneously from strategic frequency regulation service providers (FRSPs) by considering information asymmetries between independent system operator and FRSPs. Here, AS is confined to frequency reserve (FR) for arresting nadir frequency following possible contingencies of the electrical grid. An FRSP has a multi-dimensional private information vector, which determines its operational cost and limitations. Moreover, there is a gaming opportunity for an FRSP that is arisen between energy and AS payments manifesting by manipulation of its bids. Thus, in this letter, a multi-object contract is designed by using the revelation principle to optimally allocate energy and FR among FRSPs. [ABSTRACT FROM AUTHOR]

Non-equilibrium models of choice (e.g. level- |$k$| reasoning) have significantly different, sometimes more accurate, predictions in games than does Nash equilibrium. When it comes to the maximal set of functions that are implementable in mechanism design, however, they turn out to have similar implications. Focusing on single-valued rules, we discuss the role and implications of different behavioural anchors (arbitrary level-0 play), and prove a level- |$k$| revelation principle. If a function is level- |$k$| implementable given any level-0 play, it must obey a slight weakening of standard strict incentive constraints. Further, the same condition is also sufficient for level- |$k$| implementability, although the role of specific level-0 anchors is more controversial for the sufficiency argument. Nonetheless, our results provide tight characterizations of level- |$k$| implementable functions under a variety of level-0 play, including truthful, uniform, and atomless anchors. [ABSTRACT FROM AUTHOR]

Game theory is an important analytical tool for measuring problems caused by behaviors that deviate from contractual ethics. However, the PPP literature still does little to explore this research topic. This paper analyzes and improves the equilibrium conditions of a renegotiation model of PPPs by introducing the asymmetry of information in the contract. To achieve this goal, the Mechanism Design Theory is used to demonstrate how the correct tracking of the investor directly influences the payoffs of the renegotiation. The study concludes that the lack of incentive constraints in the bidding document, as an ex ante condition, does not provide sufficient information on investor management capability. In this way, this information is only revealed in the renegotiation phase. Consequently, this contract failure results in high political costs to the government due to excessive subsidies. [ABSTRACT FROM AUTHOR]

In Bayesian mechanism we demonstrate the unicity and the stability of secure reversion protocols in which risk-averse players have no incentive to cheat or to deviate from the meditator’s recommendation and that can greatly improve their equilibrium expected payoffs as compared to those generated through correlation device. The main idea of this work is to show the ease with which we can compute the equilibrium expected payoffs for players. Furthermore, we emphasize those results through a numerical simulation for which the method is able to be used for empirical analysis. [ABSTRACT FROM AUTHOR]

We report on an experiment exploring whether and how subjects may learn to use a correlation device to coordinate on a correlated equilibrium of the Battle of the Sexes game which Pareto dominates the mixed-strategy Nash equilibrium of that game. We consider a direct correlation device with messages phrased in terms of players' actions as well as an indirect device with a priori meaningless messages. According to the revelation principle, it does not matter whether the correlation device is direct or indirect so long as it implements a correlated equilibrium. However, we find that subjects had an easier time coordinating on the efficient correlated equilibrium with a direct rather than an indirect device. Nevertheless, subjects were able to learn to use the indirect device to better coordinate their play. We further find that, when paired with a fixed partner, subjects utilized history-contingent strategies (e.g., 'alternation') as a coordinating device and were more likely to ignore the correlation device in this setting; the fixed-matching protocol can thus serve as a substitute for a correlation device in achieving an efficient coordination outcome. [ABSTRACT FROM AUTHOR]

The present paper studies the problem on multi-dimensional mechanisms in which the buyer's taste and budget are his private information. The paper investigates the problem by way of a canonical mechanism in the traditional one-dimensional setting: function of one variable, the buyer's taste. In our multi-dimensional context, this is an indirect mechanism. The paper characterizes the optimal canonical mechanism and shows that this approach loses no generality with respect to the direct (multi-dimensional) mechanism. [ABSTRACT FROM AUTHOR]

In open, anonymous settings such as the Internet, agents can participate in a mechanism multiple times under different identities. A mechanism is false-name-proof if no agent ever benefits from participating more than once. Unfortunately, the design of false-name-proof mechanisms has been hindered by a variety of negative results. In this paper, we show how some of these negative results can be circumvented by making the realistic assumption that obtaining additional identities comes at a (potentially small) cost. We consider arbitrary such costs and apply our results within the context of a voting model with two alternatives. [ABSTRACT FROM AUTHOR]

When an individual performs several tasks simultaneously, processing resources must be allocated to different brain systems to produce energy for neurons to fire. Following the evidence from neuroscience, we model the brain as an organization in which a coordinator allocates limited resources to the brain systems responsible for the different tasks. Systems are privately informed about the amount of resources necessary to perform their task and compete to obtain the resources. The coordinator arbitrates the demands while satisfying the resource constraint. We show that the optimal mechanism is to impose to each system with privately known needs a cap in resources that depends negatively on the amount of resources requested by the other system. This allocation can be implemented using a biologically plausible mechanism. Finally, we provide some implications of our theory: (i) performance can be flawless for sufficiently simple tasks, (ii) the dynamic allocation rule exhibits inertia (current allocations are increasing in past needs), and (iii) different cognitive tasks are performed by different systems only if the tasks are sufficiently important. [ABSTRACT FROM PUBLISHER]

We study an incomplete information mechanism design problem with three peculiarities. First, access to agents' private information is costly and unobservable. Second, the mechanism may communicate sequentially with the agents. Third, the mechanism designer and all the agents share a common interest. As an example one can think of N geologists that study the potential oil reserves in some tract. The geologists agree on the right course of action, given their N studies. However, carrying out the study may be costly for a geologist and so he may opt to fabricate a study. The oil company that employs these geologists need not contract them simultaneously and may, furthermore, choose to provide some of the results of early studies to geologists employed later on. Finally, the geologists and the oil company would like the joint study to forecast the quantity of oil reserves as accurate as possible. It turns out that, in such settings, what may not be implementable without communication becomes implementable with communication. Clearly, the possibility for sequential communication introduces a lot of complexity to the design problem. However, we provide a result in the spirit of the revelation principle and argue that whenever implementation is possible with communication it is also possible with a simple communication mechanism. Formally, we extend the model and results in Smorodinsky and Tennenholtz (Games Econ Behav 55(2):385-406, ) who consider the similar problem but restrict attention to symmetric social choice functions and IID distributions over the private information. [ABSTRACT FROM AUTHOR]

For the adverse selection caused by the concealment of raw materials' green degree in supply chain's purchasing phase, taking the initial stage of green market development as research background, the design of incentive mechanism by the manufacture was studied. The validities of two second-best contracts, the lump-sum transfer contract and the linear shared-saving contract, were discussed respectively. The prerequisites for the implementation of two linear shared-saving contracts, the fixed contract and the flexible contract, were proposed. The influences of certain correlative factors on members' profits were analyzed. By improving the flexible contract, the non-linear coordination contract was given based on the Nash bargaining model. The results indicate that, the linear shared-saving contracts are effective to the type screening and the high-validity motivation, and the non-linear coordination contract achieves the Pareto-improvement of members' profits as well as the optimization of overall profit. The conclusion is instructive to the operation of green supply chain. [ABSTRACT FROM AUTHOR]