DP14043 A Theory of Simplicity in Games and Mechanism Design
We study extensive-form games and mechanisms allowing agents that plan for only a subset of future decisions they may be called to make (the planning horizon). Agents may update their so-called strategic plan as the game progresses and new decision points enter their planning horizon. We introduce a family of simplicity standards which require that the prescribed action leads to unambiguously better outcomes, no matter what happens outside the planning horizon. We characterize simple mechanisms for a wide range of economic environments. While stronger simplicity standards may reduce the flexibility of the designer in some cases, in others they can be imposed without loss. Our theory allows us to delineate the simplicity of common mechanisms such as posted prices and ascending auctions, with the former being simpler than the latter. As an application, we show that the well-known Random Priority mechanism is the unique mechanism that is efficient, fair, and simple to play.
