Saturday, December 6, 2008

Eric Maskin's talk at the Berlin/Brandenberg Academy of Sciences

I had a unique opportunity to attend Eric Maskin's Nobel lecture (re-delivered) at the Berlin/Brandenberg Academy of Sciences. Eric Maskin shared the 2007 Nobel prize in Economic Science with Leonid Hurwicz and Roger Myerson for work in "Mechanism Design". This being my first brush with the topic, I expected a lecture of dense technicalities. I was mistaken.

Eric gave a great introduction to the theory and for once I started thinking of how great it would have been to take one of his classes! The idea of Mechanism Design is creating a set of rules that make selfish players behave in a way to achieve a certain outcome. In classical Game Theory the set of rules (constraints) are already given and then players try to maximize their utility (benefit) by playing by the rules via their self-chosen strategies. In the end, game theorists try to determine the steady state or Nash Equilibrium where no player can benefit by unilaterally changing his strategy.

Mechanism Design is about designing the constraints or set of rules. Eric spoke about things like writing the rules for green house emissions among the countries (the players). He also spoke about the energy sector and gave a simple example of how a mechanism can be designed to satisfy different players while making choices about which energy sources to develop.

Eric started with the brother-sister cake division example - how by letting the brother cut the cake in half and then letting the sister choose the first half the division would be fair. Mechanism Design - my brother and I(re)invented this one when we were 6 ;-) !

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