Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106903
Authors: 
Gorelkina, Olga
Year of Publication: 
2015
Series/Report no.: 
Preprints of the Max Planck Institute for Research on Collective Goods 2015/3
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 (DÁspremont, 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.
Subjects: 
bounded rationality
expected externality
externality mechanisms
Level-K
JEL: 
D71
D82
C72
Document Type: 
Working Paper

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