Incentive compatibility
Encyclopedia
In mechanism design
, a process is said to be incentive-compatible if all of the participants fare best when they truthfully reveal any private information
asked for by the mechanism. As an illustration, voting systems which create incentives to vote dishonestly lack the property of incentive compatibility. In the absence of dummy bidders or collusion
, a second price auction is an example of mechanism that is incentive compatible.
There are different degrees of incentive-compatibility: in some games
, truth-telling can be a dominant strategy. A weaker notion is that truth-telling is a Bayes-Nash equilibrium: it is best for each participant to tell the truth, provided that others are also doing so.
Mechanism design
Mechanism design is a field in game theory studying solution concepts for a class of private information games...
, a process is said to be incentive-compatible if all of the participants fare best when they truthfully reveal any private information
Bayesian game
In game theory, a Bayesian game is one in which information about characteristics of the other players is incomplete. Following John C. Harsanyi's framework, a Bayesian game can be modelled by introducing Nature as a player in a game...
asked for by the mechanism. As an illustration, voting systems which create incentives to vote dishonestly lack the property of incentive compatibility. In the absence of dummy bidders or collusion
Collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
, a second price auction is an example of mechanism that is incentive compatible.
There are different degrees of incentive-compatibility: in some games
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
, truth-telling can be a dominant strategy. A weaker notion is that truth-telling is a Bayes-Nash equilibrium: it is best for each participant to tell the truth, provided that others are also doing so.