Gabriel Carroll, Stanford
Department seminar. Gabriel Carroll is an Assistant Professor in Department of Economics, Stanford University. He will present a paper entitled "Information Games and Robust Trading Mechanisms".
Agents about to engage in economic transactions may take costly actions to influence their own or others’ information: costly signaling, information acquisition, hard evidence disclosure, and so forth. We study the problem of optimally designing a mechanism to be robust to all such activities, here termed information games. The designer cares about welfare, and explicitly takes the costs incurred in information games into account. We adopt a simple bilateral trade model as a case study. Any trading mechanism is evaluated by the expected welfare, net of information game costs, that it guarantees in the worst case across all possible games. Dominantstrategy mechanisms are natural candidates for the optimum, since there is never any incentive to manipulate information. We find that for some parameter values, a dominant-strategy mechanism is indeed optimal; for others, the optimum is a nondominant- strategy mechanism, in which one party chooses which of two trading prices to offer.
Host: Bård Harstad