Behavioral Implementation

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Implementation theory assumes that participants' choices are rational, in the sense of being derived from the maximization of a contextindependent preference. The paper investigates implementation under complete information when the mechanism designer is aware that individuals suffer from cognitive biases that lead to violations of IIA, or cannot exclude the possibility of such "irrational" behavior. Terms of use: Documents in IntroductionImplementation under complete information is a classic problem in mechanism design. The designer would like to implement a rule that selects acceptable outcomes as a function of a problem's characteristics. Unfortunately, while commonly known among participants, these characteristics are unknown to him. He must thus rely on their reports to tailor his selection of outcomes. Taking into account the participants' incentives to misrepresent their information, what are the rules that the designer can effectively implement?Characteristics encode participants' preferences in standard implementation models. However, there is ample evidence in marketing, psychology and behavioral economics that people's choices need not be consistent with the maximization of a preference relation. Classic examples, which have played * The paper benefited from insightful conversations with Kfir Eliaz, Eric Maskin, Kareen Rozen, and Roberto Serrano. I also wish to thank Chris Chambers, George Mailath, Rene Saran, and Rajiv Vohra for useful comments. Financial support from the Deutsche Bank through the Institute for Advanced Study is gratefully acknowledged.

Bounded depths of rationality and implementation with complete information

“…Therefore, the specific value of the upper bound k does not matter. So an equivalent 4 For some other models of bounded rationality or irrationality within implementation under complete information, see Eliaz (2002), Renou and Schlag (2011), Tumennasan (2013), andde Clippel (2014). 5 As shown in Saran (2013), our results generalize to the cognitive hierarchy model in which a k-rational player can assign positive probabilities to others having k − 1 or lower rationality.…”

An Externality-Robust Auction: Theory and Experimental Evidence

“…The implications of these phenomena for the design of economic institutions have become the focus of the emerging field of behavioral mechanism design theory (e.g. Glazer and Rubinstein, 1998;Eliaz, 2002;Cabrales and Serrano, 2011;Bierbrauer and Netzer, 2014;de Clippel, 2012). We contribute to this literature by proposing and testing a selling mechanism, the externality-robust auction, which removes payoff externalities arising from spitefulness, inequality aversion, or other types of interdependent preferences.…”

Contracts with Framing

“…Consider an allocation rule g and a DRC (Θ, M g , f ) that implements g. Without loss of generality, we can assume that M g (θ) = g (θ) for every type θ. 4 In addition, letting g (θ) = y θ = (x θ , t θ ) be type θ's bundle, we have that x θ ≥ x θ and t θ ≥ t θ for θ > θ . 5 We will now show that there exists a frameless contract that achieves a strictly higher profit.…”