Nudge of the Week: Obvious Strategies

Economist Shengwu Li, currently at Harvard, has a new theory called “Obviously Strategyproof Mechanisms“.

The basic idea is this: there are many situations where “in theory” we expect different methods to result in identical outcomes. For example, if you want to auction off a car, theory says that having a so-called “English” auction (where the highest bidder wins) and a “second-price sealed bid” auction (where all the bids are secret, and the highest bidder wins and pays the second highest price) should both result in the same person winning.

But in practice, we don’t see this equivalence. What is the cause of this discrepancy? According to Professor Li, it is the fact that one strategy is “obviously better” better than the other.

What does an “obviously better” strategy mean? It means that the worst you can do under one strategy is still better than the best you can do under any other strategy.

Think about how the worst that your business has to offer is still better than the best alternatives for your customers.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s