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Mechanism Design

“Badminton and the Science of Rule Making” gives a survey of the science of Mechanism Design, which can be understood as the inverse of game theory. Instead of being given a game with players and payoffs where you seek the outcome, you have an outcome in mind and seek to construct a game such that the players reach that desired outcome. One example of failure in proper Mechanism design is from the Summer Olympics: in the lead up to the tennis finals, there were players who deliberately tried to lose their match so they would go up against a weaker opponent. Good mechanism design would dictate that losing a match should never advance someone’s outcome. On the other hand, a successful implementation of mechanism design is the matching system used for Doctors seeking Medical Residency.

This relates to a few examples we’ve done in class. The first is about the Prisoner’s dilemma. With the original prisoner’s dilemma, each person gets the worst outcome. But if each player feels the other person’s pain or payoff, the outcome is better for everyone. This would be something to consider when designing a mechanism for not only prisoners, but any strategic action. Similarly, we saw with Braess’ Paradox that if you build a third road between the two existing roads, it can slow down the travel time for everyone. This is bad mechanism design. Finally, the market works so well because of excellent mechanism design. People with the highest value get the item with the highest cost, which leads to a stable perfect matching between people and items. These all illustrate the importance of well thought out mechanisms for achieving social good.


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