Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/145419
Authors: 
De Clippel, Geoffroy
Saran, Rene
Serrano, Roberto
Year of Publication: 
2014
Series/Report no.: 
Working Paper, Brown University, Department of Economics 2014-7
Abstract: 
We consider mechanism design in contexts in which agents exhibit bounded depth of reasoning (level k) instead of rational expectations. We use simple direct mechanisms, in which agents report only first-order beliefs. While level 0 agents are assumed to be truth tellers, level k agents best-respond to their belief that other agents have at most k – 1 levels of reasoning. We find that incentive compatibility is necessary for implementation in this framework, while its strict version alone is sufficient. Adding continuity to both directions, the same results are obtained for continuous implementation with respect to small modeling mistakes. We present examples to illustrate the permissiveness of our findings in contrast to earlier related results under the assumption of rational expectations.
Subjects: 
mechanism design
bounded rationality
level k reasoning
small modeling mistakes
incentive compatibility
continuity
JEL: 
C72
D70
D78
D82
Document Type: 
Working Paper

Files in This Item:
File
Size
397.03 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.