incentive compatibility

In mechanism design, a process is said to be incentive compatible if all of the participants fare best when they truthfully reveal any private information the mechanism asks for. As an illustration, voting systems which create incentives to vote dishonestly lack the property of incentive compatibility. In the absence of dummy bidders, a second price auction is an example of mechanism that is incentive compatible.

There are different degrees of incentive compatibility: in some games, truth-telling can be a dominant strategy. A weaker notion is that truth-telling is a Bayes-Nash equilibrium: it is best for each participant to tell the truth, provided that others are also doing so.

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