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abstract

Better Outcomes from More Rationality

Published: 11 January 2015 Publication History

Abstract

Mechanism design enables a social planner to obtain a desired outcome by leveraging the players' rationality and their beliefs. It is thus a fundamental, yet unproven, intuition that the higher the level of rationality of the players, the better the set of obtainable outcomes.
In this paper we prove this fundamental intuition for players with possibilistic beliefs, the traditional model of epistemic game theory. Specifically,
We define a sequence of monotonically increasing revenue benchmarks for single-good auctions, G0 < G1 < G2, where each Gi is defined over the players' beliefs and G0 is the second-highest valuation (i.e., the revenue benchmark achieved by the second-price mechanism).
We (1) construct a single, interim individually rational, auction mechanism that, without any clue about the rationality level of the players, guarantees revenue Gk if all players have rationality levels > k+1, and (2) prove that no such mechanism can guarantee revenue even close to Gk when at least two players are at most level-k rational.

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cover image ACM Conferences
ITCS '15: Proceedings of the 2015 Conference on Innovations in Theoretical Computer Science
January 2015
404 pages
ISBN:9781450333337
DOI:10.1145/2688073
Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for third-party components of this work must be honored. For all other uses, contact the Owner/Author.

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 11 January 2015

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Author Tags

  1. epistemic game theory
  2. incomplete information
  3. single-good auctions

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ITCS'15
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ITCS'15: Innovations in Theoretical Computer Science
January 11 - 13, 2015
Rehovot, Israel

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ITCS '15 Paper Acceptance Rate 45 of 159 submissions, 28%;
Overall Acceptance Rate 172 of 513 submissions, 34%

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