Mechanism design theory looks at the paradoxes that result when economic actors withhold information about their preferences. When one person wishes to buy a unique item, and another is happy to sell it, they both may have an incentive to lie about the true price they would be happy to trade at. As a result, trades that ought to take place often do not do so. The Nobel winners have investigated how no auction, however designed, can truly create a perfect outcome for everyone concerned. While abstract, the theories have applications in the real world, as they suggest that markets may not be the best way to provide so-called public goods, such as roads and television programmes.
October 18th, 2007 · No Comments