The design of ambiguous mechanisms

Alfredo Di Tillio; Nenad Kos; Matthias Messner

This paper explores the sale of an object to an ambiguity averse buyer. We show that the seller can increase his profit by using an ambiguous mechanism. That is, the seller can benefit from hiding certain features of the mechanism that he has committed to from the agent. We then characterize the profit maximizing mechanisms for the seller and characterize the conditions under which the seller can gain by employing an ambiguous mechanism.

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Year of publication:	2014
Authors:	Di Tillio, Alfredo ; Kos, Nenad ; Messner, Matthias
Publisher:	München : CESifo
Subject:	optimal mechanism design \| ambiguity aversion \| incentive compatibility \| individual rationality \| Mechanismus-Design-Theorie \| Mechanism design \| Rationalität \| Rationality \| Entscheidung unter Unsicherheit \| Decision under uncertainty \| Risikoaversion \| Risk aversion \| Asymmetrische Information \| Asymmetric information \| Prinzipal-Agent-Theorie \| Agency theory \| Auktionstheorie \| Auction theory \| Entscheidungstheorie \| Decision theory \| Nichtkooperatives Spiel \| Noncooperative game \| Anreiz \| Incentives \| Experiment