Epistemological Mechanism Design

27 Pages Posted: 18 Feb 2021

See all articles by Hitoshi Matsushima

Hitoshi Matsushima

University of Tokyo - Faculty of Economics

Shunya Noda

University of Tokyo - Faculty of Economics

Date Written: October 26, 2020

Abstract

This study demonstrates a novel epistemological approach to mechanism design. We consider a type space in which agents are either selfish or honest, and show that a slight possibility of honesty in higher-order beliefs motivates all selfish agents to behave sincerely. Specifically, in our model, a central planner attempts to elicit correct information through mutual monitoring. We assume severe restrictions on incentive device availability: neither public monitoring nor allocation rules are available. Thus, the central planner uses only monetary payment rules. It is well-known that if “all agents are selfish” is common knowledge, eliciting correct information as unique equilibrium behavior is impossible. Nevertheless, we show a very permissive result: the central planner can elicit correct information from all agents as unique Bayes Nash equilibrium behavior if “all agents are selfish” is not common knowledge. This result holds even if honest agents are mostly motivated by monetary interests.

Keywords: epistemological mechanism design, unique information elicitation, common knowledge of all agents’ selfishness, intrinsic preference for honesty, quadratic scoring rule.

JEL Classification: C72, D71, D78, H41

Suggested Citation

Matsushima, Hitoshi and Noda, Shunya, Epistemological Mechanism Design (October 26, 2020). Available at SSRN: https://ssrn.com/abstract=3780909 or http://dx.doi.org/10.2139/ssrn.3780909

Hitoshi Matsushima

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Shunya Noda (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo, 113-0033
Japan

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