Robust virtual implementation under common strong belief in rationality

Bergemann and Morris (2009b) show that static mechanisms cannot robustly virtually implement any non-constant social choice function if preferences are sufficiently interdependent. Without any knowledge of how agents revise their beliefs this impossibility result extends to dynamic mechanisms. In contrast, we show that if the agents revise their beliefs according to the forward induction logic embedded in strong rationalizability, admitting dynamic mechanisms leads to considerable gains. We show that all ex-post incentive compatible social choice functions are robustly virtually implementable in private consumption environments satisfying a weak sufficient condition, including in all auction environments with generic valuation functions, regardless of the level of preference interdependence. This result derives from the key insight that in such environments, in any belief-complete type space under common strong belief in rationality (Battigalli and Siniscalchi, 2002), dynamic mechanis...

• Type: Journal
• Year: 2016
• Where: JET
• Authors: Christoph Müller
• Keywords: JET 2016