As-If Dominant Strategy Mechanisms

Résumé

We show that achieving dominant strategy incentive compatibility often re- quires to choose a mechanism which severely limits what agents can observe about others’ previous moves. However, experiments and theoretical arguments suggest increasing the trans- parency of a mechanism’s extensive form can improve reliability of its predictions even if it breaks the dominant strategy property. To help resolve this dilemma, we define as-if dominant strategy mechanisms: (i) Each agent has at least one strategy that becomes dominant if the others were restricted to behave as if the mechanism was static, and (ii) all combinations of such strategies are ex-post equilibria. These mechanisms look like a dominant strategy one to cognitively limited agents who neglect others may condition their behavior in sophisticated ways, and can help them avoid dominated behaviors. Moreover, they ensure sophisticated agents never have an incentive to deviate. Our framework rationalizes the auction format chosen by prominent online platforms, such as eBay. It also provides a unified explanation for experimental evidence in various settings. Further, we provide sufficient conditions for as-if dominant strategy mechanisms to also be weak dominance solvable.