Thursday, August 15, 2013

Mechanism Design and Entering a New Market

It is possible to design incentive structures to reveal hidden information*.

Applied to business, we can use this idea to help our customer choose vendors of high ability. The way to do this is to suggest a long multi-phase project of some fixed cost and an initial phase which will reveal the cost of each vendor.
 * The lesson on Mechanism Design shows how one can design incentive structures to reveal hidden information.