Concept

Mechanism design

Summary
Mechanism design is a field in economics and game theory that takes an objectives-first approach to designing economic mechanisms or incentives, toward desired objectives, in strategic settings, where players act rationally. Because it starts at the end of the game, then goes backwards, it is also called reverse game theory. It has broad applications, from economics and politics in such fields as market design, auction theory and social choice theory to networked-systems (internet interdomain routing, sponsored search auctions). Mechanism design studies solution concepts for a class of private-information games. Leonid Hurwicz explains that 'in a design problem, the goal function is the main "given", while the mechanism is the unknown. Therefore, the design problem is the "inverse" of traditional economic theory, which is typically devoted to the analysis of the performance of a given mechanism.' So, two distinguishing features of these games are:
  • that a game "designer" chooses t
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