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Mechanism Design without Rational Expectations by Rubbini, Giacomo is a scholarly article available to read on EtoBox.

What is Mechanism Design without Rational Expectations about?

Is incentive compatibility still necessary for implementation if we relax the rational expectations assumption? This paper proposes a generalized model of implementation that does not assume agents hold rational expectations and characterizes the class of solution concepts requiring Bayesian Incentive Compatibility (BIC) for full implementation. Surprisingly, for a broad class of solution concepts, full implementation of functions still requires BIC even if rational expectations do not hold. This finding implies that some classical results, such as the impossibility of efficient bilateral trade (Myerson & Satterthwaite, 1983), hold for a broader range of non-equilibrium solution concepts, confirming their relevance even in boundedly rational setups.

Author

Rubbini, Giacomo

Published

2023

Language

EN