Abstract
In this paper we study the effects of bounded rationality in mechanism design problems. We model bounded rationality by assuming that in the presence of an incentive compatible mechanism, players behave as if their types were in a deltaneighborhood of their true types. In our results, we explore what are the effects of such bounded rationality in the outcomes of the mechanism design problem. To such end, we characterize the social choice functions that are robust to the deltaperturbations in the sense that the designers' loss is at most of order delta^k for a certain k. A notable finding is that in quasilinear utilitarian environments the designer's loss is of order of delta^2. We illustrate the applicability of our results by means of examples.
Original language  English 

Article number  1813 
Pages (fromto)  613 
Journal  Mathematical Social Sciences 
Volume  78 
Early online date  18 Aug 2015 
DOIs  
Publication status  Published  Nov 2015 
Keywords
 Mechanism Design
 Bounded Rationality
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Profiles

Javier Rivas Ruiz
 Department of Economics  Senior Lecturer
 Economic Theory
Person: Research & Teaching