Mechanism Design

Background

Von Neumann wrote Games and Economic Behaviour.

Non-cooperative Games

Definition of a Game

1. more than 1 players in a game

2. Players have actions (actions affect the external environment).

3. Players have preferences

4. A general abstract framework for strategic interaction

Game Theory

An effort to map human behaviour to game-theoric language.

1. Describe or predict human behaviour

2. Humans tend to follow social norms and only behave strategically if incentives are large

3. Humans act strategically in games that are sufficiently simple

4. Players adapt behaviour over time towards rational play

5. Examples of systems where game theory is applicable

   • Fair allocation Mechanism

   • Auction Design

   • Exchange markets

   • Security Games

Types of Games

1. Standard Form Games

Matrix form of a game. Explicit representation of the payoffs can be exponentially large,