What is mechanism design?
Mechanism design can be considered as a special case of two-agent decision-making. In the figure, agent 1 is the mechanism designer and agent 2 is the group of all agents that will be required to make choices under the rules imposed by the mechanism designer. For example, we can think of agent 1 as the founding fathers of the United States constitution and agent 2 as the citizens of the United States. The job of agent 1, the founding fathers, is to create a social choice mechanism that translates agent 2’s, the citizens, preferences into a choice for society. The set of possible actions available to agent 1 is the set of possible mechanisms, and the set of possible actions available to agent 2 is the set of types (real or manipulated preferences). The set of consequences is the set of choices made by society when they reveal their types and when agent 1 selects a mechanism design. Agent 1’s goals are to choose a consequence that minimizes the unfairness to society according to agent 1′
