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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 asked for by the mechanism . As an illustration, voting systems which create incentives to vote dishonestly lack the property of incentive compatibility. In the absence of dummy bidders or collusion, 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.
