Revelation Principle

Definition: The revelation principle is that truth-telling, direct revelation mechanisms can generally be designed to achieve the Nash equilibrium outcome of other mechanisms; this can be proven in a large category of mechanism design cases.

The revelation principle is relevant to a modelling (that is, theoretical) context with:

• two players, usually firms
• a third party (usually the government) managing a mechanism to achieve a desirable social outcome
• incomplete information -- in particular, the players have types that are hidden from the other player and from the government.

Generally a direct revelation mechanism (that is, one in which the strategies are just the types a player can reveal about himself) in which telling the truth is a Nash equilibrium outcome can be proven to exist and be equivalent to any other mechanism available to the government. That is the revelation principle. It is used most often to prove something about the whole class of mechanism equilibria, by selecting the simple direct revelation mechanism, proving a result about that, and applying the revelation principle to assert that the result is true for all mechanisms in that context.

(Econterms)

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