Level-K Mechanism Design

Geoffroy de Clippel, Rene Saran and Roberto Serrano

No 2016-6, Working Papers from Brown University, Department of Economics

Abstract: Models of choice where agents see others as less sophisticated than themselves have significantly different, sometimes more accurate, pre- dictions in games than does Nash equilibrium. When it comes to mech- anism design, however, they turn out to have surprisingly similar impli- cations. This paper provides tight necessary and sufficient conditions for implementation with bounded depth of reasoning, discussing the role and implications of different behavioral anchors. The central con- dition slightly strenghthens standard incentive constraints, and we term it strict-if-responsive Bayesian incentive compatibility (SIRBIC).

Date: 2016
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Journal Article: Level-$k$ Mechanism Design (2019)
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