Mechanism design theory

The Sveriges Riksbank Prize in Economic Sciences 2007

Mechanism design theory provides methods to answer the following general question: What are the best rules of the game, or the best mechanism, for attaining a given objective? These objectives may vary in character: for example social welfare, profit from transactions in a market, a fair allocation of resources or a sound environment. This admission of many possible goals is what makes mechanism design theory so important and so generally applicable.


According to the so-called revelation principle, it is enough to study only a subset (the green triangle) of all mechanisms, the incentive-compatible direct mechanisms. These require each of the participants to disclose their private information and are structured so that it is optimal for each participant to report truthfully: to put their cards on the table. The subset of direct mechanisms is well-structured enough to enable mathematical analysis. This principle hence makes it possible to make general calculations for complicated decision-making processes where previously we have virtually had to resort to “trial and error”.

To cite this section
MLA style: Mechanism design theory. NobelPrize.org. Nobel Prize Outreach AB 2024. Thu. 26 Dec 2024. <https://www.nobelprize.org/prizes/economic-sciences/2007/9276-mechanism-design-theory/>

Back to top Back To Top Takes users back to the top of the page

Nobel Prizes and laureates

Six prizes were awarded for achievements that have conferred the greatest benefit to humankind. The 12 laureates' work and discoveries range from proteins' structures and machine learning to fighting for a world free of nuclear weapons.

See them all presented here.

Illustration

Explore prizes and laureates

Look for popular awards and laureates in different fields, and discover the history of the Nobel Prize.