Computer Testbeds: The Dynamics of Groves-Ledyard Mechanisms

We develop a behavioral model as a a computer testbed we can use to study the probable performance of a wide range of mechanisms prior to testing them in a laboratory or using them in practice. In this paper, we describe an implementation of our model and the computer testbed methodology to Groves-Ledyard (1977) mechanisms for provision of public goods. Previous experimental evidence, and some theory, strongly suggest that the value of a free mechanism parameter is important for the dynamic performance of the mechanism (when it is simulated as a repeated game). In our model messages converge to the Nash Equilibrium for all of the values of the mechanism parameter that we studied. However, the convergence times depend on the value of the parameter. Our analysis suggests there are values of the free parameter that result in the fastest convergence. The range of values is robust with respect to the changes in the behavioral model’s parameter values and details of the updating procedures. This prediction is validated with data from experiments with human subjects. ∗Simon Fraser University and California Institute of Technology, respectively. We thank Stephanie Chow and Stephen Tse for their very able research assistance. We would also like to thank Peter Bossaerts, Colin Camerer, Tom Palfrey and Charlie Plott for helpful discussions and participants at the seminars at the California Institute of Technology and the University of California at San Diego, and at the ESA meetings, Tucson, September 2000, the NBER Decentralization Conference, White Plains, October 2000 for useful comments. This material is based on work supported by the National Science Foundation under grant #SES-0121478. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect those of the the NSF.