DP14043 A Theory of Simplicity in Games and Mechanism Design

Author(s): Marek Pycia, Peter Troyan
Publication Date: October 2019
JEL(s): C72, C78, D44, D47, D82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14043

We introduce a general class of simplicity standards that vary the foresight abilities required of agents in extensive-form games. Rather than planning for the entire future of a game, agents are presumed to be able to plan only for those histories they view as simple from their current perspective. Agents may update their so-called strategic plan as the game progresses, and, at any point, for the called-for action to be simply dominant, it must lead to unambiguously better outcomes, no matter what occurs at non-simple histories. We use our approach to simplicity to provide characterizations of simple mechanisms in general social choice environments both with and without transfers, including canonical mechanisms such as ascending auctions, posted prices, and serial dictatorship-style mechanisms. As a final application, we explain the widespread popularity of the well-known Random Priority mechanism by characterizing it as the unique mechanism that is efficient, fair, and simple to play.