Search
  • Jose Arrieta

Magic and Strategic Kryptonite

"The best minds of my generation are thinking about how to make people click ads". And collectively, they discovered something that was first used by Goethe but Columbized by William Vickrey. in its winning bid for a Nobel prize in economics. These auctions work by giving the article to the highest bidder but requesting as compensation only the amount bid by the second-highest bidder. These bids run our lives online, they are directly responsible for Youtube to function and for allowing Google to not request monetary compensation when you use it. These auctions are the only example I understand of a particular form of magic called mechanism design..


Mechanism design is magic whose source comes from the revelation principle. Which in short explains that any incentive structure that guides people to solve a problem, can be changed in a way so that the best action of each of the agents is to act naively and not strategize. At work, this means that if you are in a team, there should be a way to incentivize all your teammates to work as hard as you want without needing to worry about how much the others are doing, you just think about yourself and your own work.


The revelation principle is kryptonite for strategic thought. And, for someone who constantly thinks about how people think while being strategic, the idea that one can design something that makes everyone better off if they do not strategize is frustrating and completely unintuitive. One should be able to use this in every aspect of our work but as anyone who has ever worked knows, strategic thought very much happens at every level of the organization, and it is seldom used for the direct benefit of the firm's bottom line more often than not it is used to help its employees keep their jobs, avoid burnout, and foster their careers


When I think of mechanism design, I think of this magic spell that would allow everyone to stop wasting energy on these strategic thoughts and just focus on the work at hand. But unfortunately, mechanism design feels to me as workable a theory as the principles of magic in Harry Potter or the laws of gravity in MC Escher's paintings. I understand why they work in their settings but I cannot grasp them to use them in my reality. I might understand Vickrey auctions, but I understand them in the same way I can understand a magic trick after it is explained, I hope to will myself into becoming a mudblood, but for now, I am just a muggle marveled by magic.

1 view0 comments

Recent Posts

See All