Mechanism Design: An Introduction from an Optimization Perspective
Seminar by
Mustafa Ç. PINAR
Department of Industrial Engineering
Mechanism design is a branch of economics and game theory where a principal wishes to design a mechanism or a game that will elicit privately held information by participants and achieve at the same time the goals of the principal. The Nobel Prize in Economics 2007 was awarded to Hurwicz, Maskin and Myerson for their work in mechanism design.
The connections of the field to optimization are ubiquitous, and Myerson's seminal paper was published in Math. of OR. In this talk I intend to make a very elementary introduction to mechanism design following the recently published book ``Mechanism design a linear programming approach'' by R. Vohra, 2011, Cambridge Univ. Press. Key concepts will be introduced using an example from the theory of screening, the simplest sub-field of mechanism design where e.g., an agent sells an item to a buyer. While the item is of no value to the seller, it represents a value to the buyer, which is, however, unknown to the seller.
The seller wishes to design a mechanism that will motivate any potential buyer to reveal his valuation truthfully and at the same time maximize earnings from the sale. Under some suitable assumptions, the problem of mechanism design in this particular context is posed as a linear optimization problem. By connecting the problem to the theory of shortest paths and duality of linear programming, the optimal mechanism is derived.
Extensions and research problems are discussed.
