On the Dominance of Truth-Telling in Gradual Mechanisms

TL;DR

This paper characterizes conditions under which truth-telling remains a dominant strategy in gradual mechanisms that implement strategy-proof social rules, using new theoretical tools and applying them to auctions and trading algorithms.

Contribution

It introduces two novel characterizations for truth-telling dominance in gradual mechanisms, expanding understanding of strategic behavior in dynamic information settings.

Findings

Truth-telling is dominant under specific incentive-preserving transformations.

Two main conditions ensure truth-telling remains dominant: information partitioning and reaction-proofness.

Applications demonstrate the practical relevance to auctions and trading algorithms.

Abstract

Recent literature highlights the advantages of implementing social rules via dynamic game forms. We characterize when truth-telling remains a dominant strategy in gradual mechanisms implementing strategy-proof social rules, where agents gradually reveal their private information while acquiring information about others in the process. Our first characterization hinges on the incentive-preservation of a basic transformation on gradual mechanisms called illuminating that partitions information sets. The second relies on a single reaction-proofness condition. We demonstrate the usefulness of both characterizations through applications to second-price auctions and the top-trading cycles algorithm.