Incentive compatibility

In game theory and economics, a mechanism is called incentive-compatible (IC): 415  if every participant can achieve their own best outcome by reporting their true preferences.: 225  For example, there is incentive compatibility if high-risk clients are better off in identifying themselves as high-risk to insurance firms, who only sell discounted insurance to high-risk clients. Likewise, they would be worse off if they pretend to be low-risk. Low-risk clients who pretend to be high-risk would also be worse off. The concept is attributed to the Russian-born American economist Leonid Hurwicz.

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