The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2007
The Sveriges Riksbank Prize in Economic Sciences 2007
Private information The card player in the picture knows exactly what she has in her hand, information that she does not want to share with her opponents. In the same way, potential buyers are unwilling to reveal to a seller exactly how much they are prepared to pay for a specific object and companies usually do not want to disclose their production costs to competitors. The existence of private information is a central aspect of the analysis of allocation mechanisms.
Voting Choosing the alternative that gains most votes is one example of a mechanism for making collective decisions. Another mechanism is to submit the two alternatives that gain most votes in a first round of voting to a second vote. In some circumstances a qualified majority, in which an alternative must gain more than a pre-specified fraction (larger than 50 percent) of the votes, is required. All these different forms of voting or decision-making mechanisms have their advantages and drawbacks that can be analysed using mechanism design theory.