As we discussed in the previous chapter, social choice theory is nonstrategic; it takes the preferences of the agents as given, and investigates ways in which they can be aggregated. But of course those preferences are usually not known. What you have, instead, is that the various agents declare their preferences, which they may do truthfully or not. Assuming the agents are self interested, in general they will not reveal their true preferences. Since as a designer you wish to find an optimal outcome with respect to the agents' true preferences (e.g., electing a leader that truly reflects the agents' preferences), optimizing with respect to the declared preferences will not in general achieve the objective.

Introduction

Mechanism design is a strategic version of social choice theory, which adds the assumption that agents will behave so as to maximize their individual payoffs. For example, in an election agents may not vote their true preference.

Example: strategic voting

Consider again our babysitting example. This time, in addition to Will, Liam, and Vic you must also babysit their devious new friend, Ray. Again, you invite each child to select their favorite among the three activities—going to the video arcade (a), playing basketball (b), and going for a leisurely car ride (c). As before, you announce that you will select the activity with the highest number of votes, breaking ties alphabetically.