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The Expected Externality Mechanism in a Level-k Environment

Olga Gorelkina

No 2015_03, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: Mechanism design theory strongly relies on the concept of Nash equilibrium. However, studies of experimental games show that Nash equilibria are rarely played and that subjects may be thinking only a finite number of iterations. We study one of the most influential benchmarks of mechanism design theory, the expected externality mechanism (D’Aspremont, Gerard-Varet, 1979) in a finite-depth environment described by the Lk model. While efficient implementation fails under certain conditions, our results provide a vindication of the mechanism in the convex quasi-linear environment with finitely-rational agents.

Keywords: Bounded Rationality; Expected externality; externality mechanisms; Level-K (search for similar items in EconPapers)
JEL-codes: C72 D71 D82 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-cta, nep-exp, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: The expected externality mechanism in a level-k environment (2018) Downloads
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