Mechanism design

Mechanism design is a field in economics and game theory that takes an engineering approach to designing economic mechanisms or incentives, toward desired objectives, in strategic settings, where players act rationally.

Because it starts at the end of the game, then goes backwards, it is also called reverse game theory.

Description

It has broad applications, from economics and politics (markets, auctions, voting procedures) to networked-systems (internet interdomain routing, sponsored search auctions).

Mechanism design studies solution concepts for a class of private-information games.

Leonid Hurwicz explains that 'in a design problem, the goal function is the main “given”, while the mechanism is the unknown. Therefore, the design problem is the “inverse” of traditional economic theory, which is typically devoted to the analysis of the performance of a given mechanism.

So, two distinguishing features of these games are:

• that a game "designer" chooses the game structure rather than inheriting one
• that the designer is interested in the game's outcome

The 2007 Nobel Memorial Prize in Economic Sciences was awarded to Leonid Hurwicz, Eric Maskin, and Roger Myerson "for having laid the foundations of mechanism design theory".

See also

• Algorithmic mechanism design
• Alvin E. Roth - Nobel Prize, market design
• Assignment problem
• Contract theory
• Game theory
• Implementation theory
• Incentive compatibility
• Metagame
• Revelation principle
• Smart market

External links

• Mechanism design @ Wikipedia