An Experiment on Nash Implementation

Abstract

We perform an experimental test of a modification of the controversial canonical mechanism for Nash implementation, using 3 subjects in non-repeated groups, as well as 3 outcomes, states of nature, and integer choices. We find that this mechanism successfully implements the desired outcome a large majority of the time, providing empirical evidence for the feasibility of such implementation. In addition, the performance is further improved by imposing a fine on a dissident, so that the mechanism implements strict Nash equilibria. However, the strategy profile corresponding to the pure Nash equilibrium is seldom played. Thus, we are left with the puzzle that implementation of the desired result occurs by means of strategy profiles that are not pure Nash equilibria. We offer an explanation based on a mild degree of risk aversion and a taste for truth-telling. While our environment is stylized, our results offer hope that experiments can identify reasonable features for practical implementation mechanisms.

Keywords: Implementation, Experiments, Mechanisms

JEL Classification: C72, C92, D70, D78