Canonical · Game Theory & Strategy · Theory

Mechanism Design & Auctions

Leonid Hurwicz / William Vickrey · 1960

"Mechanism design reverses game theory: instead of predicting play given rules, it engineers rules so that self-interested play produces the outcome you want — most cleanly in auctions where truthful bidding can be made the best strategy."

The idea

Hurwicz asked the inverse question of game theory: don't predict how people will play this game — design a game people will play truthfully even while pursuing self-interest.

Why it works

The takeaway — recall it first

Zero-Sum vs Positive-Sum Games

"Von Neumann distinguished zero-sum games — where one player's gain is exactly another's loss — from positive-sum games where mutually beneficial moves exist, arguing that misclassifying a positive-sum situation as zero-sum is one of the costliest strategic errors."

John von Neumann / Oskar Morgenstern · TheoryContinue→