Monday, 26 November 2007

Intelligent Design

Source: The Economist, October 20th 2007
Section: Economics Focus
Title: Intelligent Design
Subtitle: A theory of an intelligently guided invisible hand wins the Nobel prize

... despite its dreary name, mechanism design is a hugely important area of economics, and underpins much of what dismal scientists do today. It goes to the heart of one of the biggest challenges in economics: how to arrange our economic interactions so that, when everyone behaves in a self-interested manner, the result is something we all like. The word "mechanism" refers to the institutions and the rules of the game that govern our economic activities...

Mechanism-design theory aims to give the invisible hand a helping hand, in particular by focusing on how to minimise the economic cost of "asymmetric information" - the problem of dealing with someone who knows more than you do...

His [Mr Hurwicz's] big idea was "incentive compatibility". The way to get as close as possible to the most efficient outcome is to design mechanisms in which everybody does best for themselves by sharing truthfully whatever private information they have that is asked for...

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