Nota Bene Journal attended the lecture «An Introduction to Mechanism Design» by Professor Eric Maskin. Eric Maskin is the Adams University Professor at Harvard University. He and L. Hurwicz, R. Myerson received the 2007 Nobel Memorial Prize in Economics for laying the foundations of mechanism design theory. Professor Maskin also made contributions to game theory, contract theory, social choice theory, political economy and other areas of economics.
Eric Maskin is a Chairman of the Board of Trustees of the International Economics Olympiad — annual competition in economics organized for high school students from all around the world, intended to stimulate the activities of students interested in economics, business and finance.
«I don’t actually agree with everything that Karl Marx said. But I do agree with one point that he made in particular. And that is that economics is the foundation of society. There’s a sense of which, I think, economics is the most important of all the sciences because it helps us understand how society works. But it’s not only an important subject. It’s also a fascinating subject,» Eric Maskin said.
NBJ prepared a synopsis of main points and questions in Mechanism Design according to the presentation of Eric Maskin «An Introduction to Mechanism Design».
Positive part of economics aims at predicting and explaining the outcomes of one’s actions. Mechanism Design, on the contrary, creates a system, set of actions by shaping particular behavior that leads to these certain goals considered as an equilibrium states. According to Eric Maskin, Theory of Mechanism Design is an «engineering» part of economic theory.
It begins with identifying desired, optimal outcomes, and then asks whether institutions could be designed to achieve those outcomes. If so, what forms would institutions take?
The simplest and the tastiest example of applying Mechanism Design is the solution of cake division problem.
Suppose that Alice and Bob want to eat a cake prepared by mom. The main question here is in which way a person should cut a cake so that both kids will be satisfied by getting equal pieces?
- Mother can split the cake in equal (in her view) portions and give each one to a kid.
- But! The children may see the portions unequal that means the mother’s goal of fair division isn’t achieved (probably she doesn’t know what is fair herself). Here is what Mechanism Design suggests to do in such situation.
Bob cuts the cake in two equal parts then Alice chooses one of the pieces. Why does it work? Bob divided the cake equally in his eyes, if Alice doesn’t agree that portions are equal she is able to take the biggest one because of the first choice. On the other side, whichever piece Alice takes, Bob will be satisfied with other.
Here are key points of mechanism design showed by this example:
- Mechanism designer can’t be 100% sure if the outcome is optimal;
- Allow participants to generate information required to get optimal outcome;
- Participants have their own goals and don’t care about mechanism designer objectives;
- Mechanism should reconcile both individual and social interests.
You can study more complicated samples of Mechanism design by reading Eric Maskin’s book «Nash equilibrium and welfare optimality».
We also asked Eric Maskin some questions about the influence of big data, problems that are going to be solved by Mechanism design and talented students!
NBJ: How does big data influence the mechanism design?
Eric Maskin: Well, big data is used for understanding what is going on in the world. If we want to correct the problems that society faces and that’s actually what mechanism design does, we have to first understand what those problems are and that’s what big data is good for. We can understand, for example, where and why there is inequality or we can figure out where there is a poverty and what are the reasons of it. And once we understand what the problems are we can use mechanisms to correct the problems.
NBJ: Were some theories ruined by big data? For example, you have the data and you use it to correct your theory.
Eric Maskin: I don’t know if big data ruins theories, but big data helps us to understand what’s going on in the world. If you are going to correct the problem you have to first know what the problem is.
NBJ: Which problems are going to be solved in near future by mechanism design?
Eric Maskin: International treaty on greenhouse gas emissions, policies to prevent financial crises, presidential elections — all of these problems are correctable by mechanism of design.
NBJ: And one more question: who is a talented student for you? Can you describe the feature of an outstanding student?
Eric Maskin: Someone who is curious.
I think curiosity is the most important characteristic.
Someone who is willing to work hard and someone who is willing not to give up until he gets an answer.
Над материалом и интервью работала: Мария Кучеренко