Game Theory pp 312-318 | Cite as
Revelation Principle
Abstract
Communication is central to the economic problem (Hayek, 1945). Opportunities for mutually beneficial transactions cannot be found unless individuals share information about their preferences and endowments. Markets and other economic institutions should be understood as mechanisms for facilitating communication. However, people cannot be expected to reveal information when it is against their interests; for example, a seller may conceal his willingness to sell at a lower price. Rational behaviour in any specific communication mechanism can be analysed using game-theoretic equilibrium concepts, but efficient institutions can be identified only by comparison with all possible communication mechanisms. The revelation principle is a technical insight that allows us, in any given economic situation, to make general statements about all possible communication mechanisms.
Keywords
Private Information Solution Concept Communication Mechanism Sequential Equilibrium Incentive ConstraintPreview
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