IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v107y2017i5p235-39.html
   My bibliography  Save this article

Bounded Rationality and Robust Mechanism Design: An Axiomatic Approach

Author

Listed:
  • Luyao Zhang
  • Dan Levin

Abstract

We propose an axiomatic approach to study the superior performance of mechanisms with obviously dominant strategies to those with only dominant strategies. Guided by the psychological inability to reason state-by-state, we develop Obvious Preference as a weakening of Subjective Expected Utility Theory. We show that a strategy is an obviously dominant if and only if any Obvious Preference prefer it to any deviating strategy at any reachable information set. Applying the concept of Nash Equilibrium to Obvious Preference, we propose Obvious Nash Equilibrium to identify a set of mechanisms that are more robust than mechanisms with only Nash Equilibria.

Suggested Citation

  • Luyao Zhang & Dan Levin, 2017. "Bounded Rationality and Robust Mechanism Design: An Axiomatic Approach," American Economic Review, American Economic Association, vol. 107(5), pages 235-239, May.
    • Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:235-39
    Note: DOI: 10.1257/aer.p20171030
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/aer.p20171030
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=sBZcT8K9jUmmD_qdcKuLQ2OwHYTlsc6g
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=h_IpznoLSds5TFCJdSIimzmjvpJU0lsD
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ran I. Shorrer & Sandor Sovago, 2017. "Obvious Mistakes in a Strategically Simple College Admissions Environment," Tinbergen Institute Discussion Papers 17-107/V, Tinbergen Institute.
    2. Yulin Liu & Yuxuan Lu & Kartik Nayak & Fan Zhang & Luyao Zhang & Yinhong Zhao, 2022. "Empirical Analysis of EIP-1559: Transaction Fees, Waiting Time, and Consensus Security," Papers 2201.05574, arXiv.org, revised Apr 2023.
    3. Hagenbach, Jeanne & Perez-Richet, Eduardo, 2018. "Communication with evidence in the lab," Games and Economic Behavior, Elsevier, vol. 112(C), pages 139-165.
    4. André Schmelzer, 2018. "Strategy-Proofness of Stochastic Assignment Mechanisms," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 3(1), pages 17-50, December.
    5. Baccelli, Jean & Hartmann, Lorenz, 2023. "The Sure-Thing Principle," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    6. Marek Pycia & Peter Troyan, 2023. "A Theory of Simplicity in Games and Mechanism Design," Econometrica, Econometric Society, vol. 91(4), pages 1495-1526, July.
    7. Echenique, Federico & Miyashita, Masaki & Nakamura, Yuta & Pomatto, Luciano & Vinson, Jamie, 2022. "Twofold multiprior preferences and failures of contingent reasoning," Journal of Economic Theory, Elsevier, vol. 202(C).
    8. Shorrer, Ran I. & Sóvágó, Sándor, 2024. "Dominated choices under deferred acceptance mechanism: The effect of admission selectivity," Games and Economic Behavior, Elsevier, vol. 144(C), pages 167-182.
    9. Yves Breitmoser & Sebastian Schweighofer-Kodritsch, 2022. "Obviousness around the clock," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 483-513, April.
    10. McGee, Peter & Levin, Dan, 2019. "How obvious is the dominant strategy in an English Auction? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 355-365.
    11. Mariya Halushka, 2021. "Obviously Strategy-proof Mechanism Design With Rich Private Information," Working Papers 2104E, University of Ottawa, Department of Economics.
    12. Hartmann, Lorenz, 2023. "Strength of preference over complementary pairs axiomatizes alpha-MEU preferences," Journal of Economic Theory, Elsevier, vol. 213(C).

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:235-39. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.