Mechanism design

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Mechanism design is a sub-field of game theory. It is the art of designing rules of a game to achieve a specific outcome. This is done by setting up a structure in which each player has an incentive to behave as the designer intends. The game is then said to implement the desired outcome. The strength of such a result depends on the solution concept used in the game.

Most of the results in mechanism design have been established by economists, but some mathematicians, computer scientists and electrical engineers also work in the field.

One branch of mechanism design is the creation of markets such as auctions. Another is the design of matching algorithms such as the one used to pair medical school graduates with internships. A third application is to the provison of public goods, and the optimal design of taxation schemes by governments.

A common exercise in mechanism design is to achieve the desired outcome according to a specific solution concept. The celebrated Gibbard-Satterthwaite theorem shows that any outcome that can be implemented as a dominant strategy equilibrium is necessarily dictatorial. This is similar to Arrow's Impossibility Theorem. By contrast, implementation in Nash equilibrium is possible for a much wider range of social choice rules.

view	Topics in game theory
Definitions	Normal form game · Extensive form game · Cooperative game · Information set · Preference
Equilibrium concepts	Nash equilibrium · Subgame perfection · Bayes-Nash · Trembling hand · Correlated equilibrium · Sequential equilibrium · Quasi-perfect equilibrium · Evolutionarily stable strategy
Strategies	Dominant strategies · Mixed strategy · Grim trigger · Tit for Tat
Classes of games	Symmetric game · Perfect information · Dynamic game · Repeated game · Signaling game · Cheap talk · Zero-sum game · Mechanism design
Games	Prisoner's dilemma · Coordination game · Chicken · Battle of the sexes · Stag hunt · Matching pennies · Ultimatum game · Minority game · Rock, Paper, Scissors · Pirate game · Dictator game
Theorems	Minimax theorem · Purification theorems · Folk theorem · Revelation principle · Arrow's Theorem
Related topics	Mathematics · Economics · Behavioral economics · Evolutionary game theory · Population genetics · Behavioral ecology · Adaptive dynamics · List of game theorists