Econometrica: Sep, 2015, Volume 83, Issue 5

Knightian Analysis of the Vickrey Mechanism

https://doi.org/10.3982/ECTA12131
p. 1727-1754

Alessandro Chiesa, Silvio Micali, Zeyuan Allen Zhu

We analyze the Vickrey mechanism for auctions of multiple identical goods when the players have both Knightian uncertainty over their own valuations and incomplete preferences. In this model, the Vickrey mechanism is no longer dominant‐strategy, and we prove that all dominant‐strategy mechanisms are inadequate. However, we also prove that, in undominated strategies, the social welfare produced by the Vickrey mechanism in the worst case is not only very good, but also essentially optimal.