Adding noise to the institution: an experimental welfare investigation of the contribution-based grouping mechanism

Heinrich H. Nax, Stefano Balietti, Ryan O. Murphy, Dirk Helbing
Social Choice and Welfare
September 12, 2017

Abstract

Real-world  institutions dealing with social dilemma situations are based on mechanisms  that are rarely implemented without flaw. Usually real-world mechanisms are  noisy and imprecise, that is, which we call ‘fuzzy’. We therefore  conducted a novel type of voluntary contributions experiment where we test a  mechanism by varying its fuzziness. We focus on a range of fuzzy mechanisms  we call ‘meritocratic matching’. These mechanisms generalize the  mechanism of ‘contribution-based competitive grouping’, and their basic  function is to group players based on their contribution choices—i.e. high  contributors with high contributors, and low contributors with low  contributors. Theory predicts the following efficiency-equality tradeoff as a  function of the mechanism’s inherent fuzziness: high levels of fuzziness  should lead to maximal inefficiency, but perfect equality; decreasing  fuzziness is predicted to improve efficiency, but at the cost of growing  inequality. The main finding of our experimental investigation is that,  contrary to tradeoff predictions, less fuzziness increases both efficiency  and equality. In fact, these unambiguous welfare gains are partially realized  already at levels where the mechanism is too fuzzy for any high-efficiency  outcome to even be a Nash equilibrium.

Related publications