Behavioral market design (in the JEP)

 The Fall 2024 Journal of Economic Perspectives has three papers on behavioral market design:

Symposium: Behavioral Incentive Compatibility

6.	Evaluating Behavioral Incentive Compatibility: Insights from Experiments
	David Danz, Lise Vesterlund, and Alistair J. Wilson
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Incentive compatibility is core to mechanism design. The success of auctions, matching algorithms, and voting systems all hinge on the ability to select incentives that make it in the individual's interest to reveal their type. But how do we test whether a mechanism that is designed to be incentive compatible is actually so in practice, particularly when faced with boundedly rational agents with nonstandard preferences? We review the many experimental tests that have been designed to assess behavioral incentive compatibility, separating them into two categories: indirect tests that evaluate behavior within the mechanism, and direct tests that assess how participants respond to the mechanism's incentives. Using belief elicitation as a running example, we show that the most popular elicitations are not behaviorally incentive compatible. In fact, the incentives used under these elicitations discourage rather than encourage truthful revelation.

 

7.	Behavioral Incentive Compatibility and Empirically Informed Welfare Analysis: An Introductory Guide
	Alex Rees-Jones
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A growing body of research conducts welfare analysis that assumes behavioral incentive compatibility—that is, that behavior is governed by pursuit of incentives conditional on modeled imperfections in decision-making. In this article, I present several successful examples of studies that apply this approach and I use them to illustrate guidance for pursuing this type of analysis.

 

8.	Designing Simple Mechanisms
	Shengwu Li
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It matters whether real-world mechanisms are simple. If participants cannot see that a mechanism is incentive-compatible, they may refuse to participate or may behave in ways that undermine the mechanism. There are several ways to formalize what it means for a mechanism to be "simple." This essay explains three of them, and suggests directions for future research.