Mechanism design

Abstract

In game theory, players have rules and pay-off and they interact until some point of equilibrium is achieved. This way, we are able to see how a game with sets of rules and a pay-off reaches equilibrium. Mechanism design is the inverse of that, we know what the end-state should look like and our task is to identify the rules and pay-off function which will ensure that the desired end-state is achieved. This is done by assuming that the agents in this setting act rationally. However, these agents are bounded rationally because the degree of rationality is limited. This chapter also discusses how artificial intelligence impacts mechanism design.