Designing Simpler Mechanisms: Transparency and As-If Dominance

Abstract
We show agents can adopt a simplifying heuristic to avoid dominated strategies. It prescribes playing strategies optimal against all unconditional behaviors of the others. A mechanism is as-if dominant strategy if the adoption of this heuristic is self-supporting. That is, no agent can ever profit by unilaterally strategizing further. As-if dominance is more permissive than dominance, allowing for substantially more transparent mechanisms. This is useful, as we show transparency makes the heuristic’s prescriptions easier to follow. Our approach rationalizes the auction choice of prominent online platforms, such as eBay. Further, it provides a unified explanation for a range of experimental findings. Finally, under some conditions met in our applications, as-if dominance ensures that coarse rationality emerges from a generational learning process. Joint paper with Roberto Saitto.