The Design of Ambiguous Mechanisms

Alfredo di Tillio, Nenad Kos and Matthias Messner

The Review of Economic Studies, 2017, vol. 84, issue 1, 237-276

Abstract: This article explores the sale of an object to an ambiguity averse buyer. We show that the seller can increase his profit by using an ambiguous mechanism. That is, the seller can benefit from hiding certain features of the mechanism that he has committed to from the agent. We then characterize the profit maximizing mechanisms for the seller and characterize the conditions under which the seller can gain by employing an ambiguous mechanism. Finally, we propose a class of ambiguous mechanisms that are easy to implement and perform better than the best non-ambiguous mechanism.

Keywords: Optimal mechanism design; Ambiguity aversion; Incentive compatibility; Individual rationality (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:84:y:2017:i:1:p:237-276.

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