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The Complete Idiot's Guide to Game Theory by Edward Rosenthal, Ph.D., Edward C. Rosenthal

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Design for Truthful Revelation

In Chapter 15 I demonstrated how Vickrey’s second-price auction gives all potential buyers an incentive to bid their true valuations. The second-price auction works because the actual amount you pay is independent of the amount you bid. Therefore you are not punished in any way for revealing how much the item is really worth to you.
Let’s not forget that this part of the book is concerned not just with individual valuations but with group consequences. So now let’s consider some examples of interactions in which game theorists have managed to coax players into being straight with one another—not just for honesty’s sake but for everybody’s benefit.
The schemes that I present provide an introduction to a branch ...

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