Optimal and Robust Mechanism Design with Interdependent Values

Roughgarden, Tim; Talgam-Cohen, Inbal

doi:10.1145/2910577

Cited by 26 publications

(40 citation statements)

References 45 publications

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“…We focus on deterministic and anonymous mechanisms, as they are optimal for interdependent values of fully rational agents (Ausubel, 1999;Maskin and Siebert, 1992;Roughgarden and Talgam-Cohen, 2016). We extend the cursed-equilibrium model of Eyster and Rabin (2005) to support a strong truthfulness notion of Cursed ex-post incentive-compatible (C-EPIC), the equivalent of ex-post IC in the case of fully rational agents, which is the strongest incentive notion possible for this setting 1 (see Section 3.1).…”

Section: Our Resultsmentioning

confidence: 99%

“…In addition, there is a large literature, including Wilson (1969);Milgrom and Weber (1982); Klemperer (1998); Bulow and Klemperer (2002); Roughgarden and Talgam-Cohen (2016), studying the interdependent valuation auction, the type of auctions we consider in this paper. Different from our work which designs mechanism for agents who suffer the winner's curse, these papers consider the mechanism design for fully rational agents who play (Bayesian) Nash equilibrium strategies.…”

Section: Related Workmentioning

confidence: 99%

“…They interpreted the anomalies in terms of fully rational bidders taking the winner's curse into consideration. Roughgarden and Talgam-Cohen (2016) developed tools to build ex-post incentive compatible for general interdependent valuation auctions with fully rational agents. We use their tools to build our mechanisms.…”

Section: Related Workmentioning

confidence: 99%

“…We consider the case of symmetric agents (as in Eyster and Rabin (2005); Milgrom and Weber (1982); Roughgarden and Talgam-Cohen (2016)). We assume:…”

Section: Modelmentioning

confidence: 99%

“…We study deterministic and anonymous mechanisms, as these are optimal in our setting for noncursed agents (Roughgarden and Talgam-Cohen, 2016;Ausubel, 1999;Maskin and Siebert, 1992). A mechanism is deterministic if x i (s) ∈ {0, 1} for any i and s. A mechanism is anonymous if for any s and any permutation t of s, x i (s) = x j (t), p i (s) = p j (t) whenever s i = t j .…”

Section: Modelmentioning

confidence: 99%

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Cursed yet Satisfied Agents

Eden¹,

Wang²

2021

Preprint

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In real life auctions, a widely observed phenomenon is the winner's curse-the winner's high bid implies that the winner often overestimates the value of the good for sale, resulting in an incurred negative utility. The seminal work of Eyster and Rabin [Econometrica'05] introduced a behavioral model aimed to explain this observed anomaly. We term agents who display this bias "cursed agents". We adopt their model in the interdependent value setting, and aim to devise mechanisms that prevent the agents from obtaining negative utility. We design mechanisms that are cursed ex-post incentive compatible, that is, incentivize agents to bid their true signal even though they are cursed, while ensuring that the outcome is individually rational (EPIR)-the price the agents pay is no more than the agents' true value.Since the agents might over-estimate the value of the allocated good, such mechanisms might require the seller to make positive transfers to the agents in order to prevent agents from overpaying for the good. While the revenue of the seller not requiring EPIR might increase when agents are cursed, when imposing EPIR, cursed agents will always pay less than fully rational agents (due to the positive transfers the seller makes). We devise revenue and welfare maximizing mechanisms for cursed agents. For revenue maximization, we give the optimal deterministic and anonymous mechanism. For welfare maximization, we require ex-post budget balance (EPBB), as positive transfers might cause the seller to have negative revenue. We propose a masking operation that takes any deterministic mechanism, and imposes that the seller would not make positive transfers, enforcing EPBB. We show that in typical settings, EPBB implies that the mechanism cannot make any positive transfers, implying that applying the masking operation on the fully efficient mechanism results in a socially optimal EPBB mechanism. This further implies that if the valuation function is the maximum of agents' signals, the optimal EPBB mechanism obtains zero welfare. In contrast, we show that for sum-concave valuations, which include weighted-sum valuations and ℓ p -norms, the welfare optimal EPBB mechanism obtains half of the optimal welfare as the number of agents grows large.

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Section: Our Resultsmentioning

confidence: 99%

Section: Related Workmentioning

confidence: 99%

Section: Related Workmentioning

confidence: 99%

“…We consider the case of symmetric agents (as in Eyster and Rabin (2005); Milgrom and Weber (1982); Roughgarden and Talgam-Cohen (2016)). We assume:…”

Section: Modelmentioning

confidence: 99%

Section: Modelmentioning

confidence: 99%

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