Strategy-Proofness in the Large

72 Pages Posted: 11 Sep 2017

See all articles by Eduardo M. Azevedo

Eduardo M. Azevedo

University of Pennsylvania - The Wharton School

Eric B. Budish

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

We propose a criterion of approximate incentive compatibility, strategy-proofness in the large (SP-L), and argue that it is a useful second-best to exact strategy-proofness (SP) for market design. Conceptually, SP-L requires that an agent who regards a mechanism’s “prices” as exogenous to her report – be they traditional prices as in an auction mechanism, or price-like statistics in an assignment or matching mechanism – has a dominant strategy to report truthfully. Mathematically, SP-L weakens SP in two ways: (i) truth-telling is required to be approximately optimal (within epsilon in a large enough market) rather than exactly optimal, and (ii) incentive compatibility is evaluated ex interim, with respect to all full-support i.i.d. probability distributions of play, rather than ex post with respect to all possible realizations of play. This places SP-L in between the traditional notion of approximate strategy-proofness, which evaluates incentives to manipulate ex post, and the traditional notion of approximate Bayes-Nash incentive compatibility, which evaluates incentives to manipulate ex interim with respect to the single common-knowledge probability distribution associated with Bayes-Nash equilibrium.

Suggested Citation

Azevedo, Eduardo M. and Budish, Eric B., Strategy-Proofness in the Large (September 2017). NBER Working Paper No. w23771. Available at SSRN: https://ssrn.com/abstract=3035125

Eduardo M. Azevedo (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://www.eduardoMazevedo.com

Eric B. Budish

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8453 (Phone)

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