The Role of Bounded Rationality and Imperfect Information in Subgame Perfect Implementation- An Empirical Investigation
P Aghion, E Fehr, R Holden, T Wilkening
Journal of the European Economic Association | Oxford University Press (OUP) | Published : 2018
In this paper we conduct a laboratory experiment to test the extent to which Moore and Repullo’s subgame perfect implementation mechanism induces truth-telling, both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the good’s value. We find that Moore–Repullo mechanisms fail to implement truth-telling in a substantial number of cases even under perfect information about the valuation of the good. Our data further suggests that a substantial proportion of these lies are made by subjects who hold pessimistic beliefs about the rationality of their trading partners. Although the mechanism should—in theory—provide incenti..View full abstract
Awarded by Australian Research Council including ARC Future Fellowship
Awarded by ARC Discovery Early Career Research Award
We owe special thanks to Michael Powell and EricMaskin. We also thank Christopher Engel, Oliver Hart, Martin Hellwig, Andy Postlewaite, Klaus Schmidt, Larry Samuelson, and seminar participants at the 2010 Asian-Pacific ESA Conference (Melbourne, Australia), Bocconi, Chicago Booth, Harvard, MIT, Stanford, the IIES in Stockholm, the Max Planck Institute in Bonn, UNSW and University of Queensland for helpful comments. We gratefully acknowledge the financial support of the Australian Research Council including ARC Future Fellowship FT130101159 (Holden) and ARC Discovery Early Career Research Award DE140101014 (Wilkening), the University of Melbourne Faculty of Business and Economics, and the European Research Council grant on the Foundations of Economic Preferences (Fehr).