As-if Dominant Strategy Mechanisms

Abstract:

We show that achieving dominant strategy incentive compatibility often requires a designer to choose a mechanism of severely limited transparency. To allow for greater transparency while maintaining straightforward strategic incentives we propose as-if dominant strategy mechanisms,  defined as follows. As long as all agents believe others play as if they were in a static mechanism: (i) Each of them has a strategy that is optimal no matter what others do, and (ii) rationality alone is enough to ensure that they always best respond to each other. We show that the auction format used by prominent online platforms---such as eBay---achieves maximal transparency within the set of as-if dominant strategy second-price auctions with asynchronous bids. Furthermore, we provide a unified explanation for experimental findings in a range of settings, from matching to multi-unit auctions environments. Finally, we show that mechanisms satisfying a refinement of as-if dominance are also solvable by iterated elimination of weakly dominated strategies.