Nobel Prize-winning economist cites Li Shengwu’s “Credible Mechanisms” as 2018’s most significant economics research paper

A paper co-authored by Harvard University’s Economics associate professor Li Shengwu was picked by 2012 Nobel Prize winner in Economics Alvin Roth as being the most significant economics research paper in 2018.

Professor Roth of Stanford University told business news platform Quartz that the paper – titled Credible Mechanisms – “defines a notion of “credibility” of an auction, having to do with not having to trust the auctioneer beyond what the bidders can see for themselves.

“The first-price auction is the unique credible static mechanism and the ascending auction is the unique credible strategy-proof mechanism. So the paper gives us a new way to understand those venerable auction forms,” he said.

In Credible Mechanisms, Mr Li, with his co-author Mohammad Akbarpour – an assistant professor of economics at Stanford University – found that “an auction in which every body submits their bid without knowing anyone else’s bid is the best way to make sure the auction is legitimate”.

The paper focuses on the areas of game theory and market design.

Earlier this year, Mr Li was awarded the Exeter Prize “in the fields of Experimental Economics, Behavioural Economics and Decision Theory” from the University of Exeter’s Business School.

His paper, titled Obviously Strategy-Proof Mechanisms and published in the American Economic Review, was awarded the Prize “for the best paper published in the previous calendar year in a peer-reviewed journal in the fields of Experimental Economics, Behavioural Economics and Decision Theory”.

“The paper proposes and analyzes a desirable property for mechanisms implementing social outcomes. A mechanism is a game whose rules are designed by a social planner for the purpose of implementing a certain desirable social outcome (e.g., efficiency or fairness).

“Such mechanisms are always designed under the assumption that the parties involved will play an equilibrium outcome,” said the nomination panel.

“Strategy-proof mechanisms,” according to the nomination panel, “received special attention in the literature, because they implement an outcome that is not only an equilibrium, but also one with dominant strategies, i.e., no player can do anything better than playing the strategy that leads to the socially desirable outcome, no matter what other people are doing.”

The panel added: “Yet as experimental and empirical results have shown, in real life, strategy proof mechanisms don’t always guarantee that players will do what they are expected to do. This is mainly because the reasoning behind the “right thing to do” is often complicated even in cases that admit a dominant-strategy equilibrium (one prominent mechanism of this sort is the second-price auction).

“Li’s paper proposes a concept of “obvious mechanisms.” This mechanism not only admits a dominant-strategy equilibrium, but also guarantees that it is cognitively simple to confirm that playing anything else is irrational,” the statement read.

It added that “Li’s approach allows us to make mechanism design theory more applicable, and closer to reality. It warns us against choosing social mechanisms that we as game theorists hold to be secure, but when applied in the real-world will prove to be too complicated for people to do the right thing.”

Mr Li – son of Lee Hsien Yang and estranged nephew of Prime Minister Lee Hsien Loong – is currently under self-exile from Singapore due to the charges being held against him by the Attorney-General’s Chambers (AGC) for alleged contempt of court.

The AGC initiated legal proceedings against Mr Li over “contempt of court” on 21 Aug last year, in which he had privately posted a statement on his Facebook, saying that “the Singapore government is very litigious and has a pliant court system”.

Mr Li was granted leave to appeal against a court order granted upon the Attorney-General’s Chambers (AGC) to have papers served against him for contempt of court in a ruling by the Court of Appeal on 3 Sep.

The post was related to the high-profile Lee family dispute surrounding the Oxley Road home of Li’s late grandfather and Singapore’s founding Prime Minister Mr Lee Kuan Yew, in which Mr Lee Hsien Yang, his aunt Ms Lee Wei Ling, and PM Lee Hsien Loong were involved.

In a Facebook post dated 3 Sep this year, Mr Lee Hsien Yang pointed out the apparent unfairness in the AGC’s treatment of his son, Mr Li Shengwu, stating that despite “much stronger criticism of Singapore courts has recently been published in some international media and widely shared public posts”, the AGC, in his view, has not taken any legal action against such entities for publishing and spreading such posts.

Mr Lee Hsien Yang also highlighted that proceedings are unjustly held against his son over “his private communications”, as the Facebook post was “shared only with his friends”, unlike the public criticism often aired by international media and even other individuals.