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on Economic Design |
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Issue of 2022‒11‒28
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Itzhak Rasooly |
| Abstract: | In this paper, we revisit the common claim that double auctions necessarily generate competitive equilibria. We begin by observing that competitive equilibrium has some counterintuitive implications: specifically, it predicts that monotone shifts in the value distribution can leave prices unchanged. Using experiments, we then test whether these implications are borne out by the data. We find that in double auctions with stationary value distributions, the resulting prices can be far from competitive equilibria. We also show that the effectiveness of our counterexamples is blunted when traders can leave without replacement as time progresses. Taken together, these findings suggest that the ‘Marshallian path’ is crucial for generating equilibrium prices in double auctions. |
| Date: | 2022–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:974&r=des |
| By: | Yi-Chun Chen; Gaoji Hu; Xiangqian Yang |
| Abstract: | A principal who values an object allocates it to one or more agents. Agents learn private information (signals) from an information designer about the allocation payoff to the principal. Monetary transfer is not available but the principal can costly verify agents' private signals. The information designer can influence the agents' signal distributions, based upon which the principal maximizes the allocation surplus. An agent's utility is simply the probability of obtaining the good. With a single agent, we characterize (i) the agent-optimal information, (ii) the principal-worst information, and (iii) the principal-optimal information. Even though the objectives of the principal and the agent are not directly comparable, we find that any agent-optimal information is principal-worst. Moreover, there exists a robust mechanism that achieves the principal's payoff under (ii), which is therefore an optimal robust mechanism. Many of our results extend to the multiple-agent case; if not, we provide counterexamples. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.16001&r=des |
| By: | Alexei Parakhonyak; Anton Sobolev |
| Abstract: | We consider an information design problem when the sender faces ambiguity regarding the probability distribution over the states of the world, the utility function and the prior of the receiver. The solution concept is minimax loss (regret), that is, the sender minimizes the distance from the full information benchmark in the worst-case scenario. We show that in the binary states and binary actions setting the optimal strategy involves a mechanism with a continuum of messages, which admits a representation as a randomization over mechanisms consisting of two messages. A small level of uncertainty regarding the receiver’s prior makes the sender more truthful than in the full information benchmark, but as uncertainty increases at some point the sender starts to lie more. If the sender either knows the probability distribution over the states of the world, or knows that the receiver knows it, then the maximal loss is bounded from above by 1/e. This result generalizes to an infinite state model, provided that the set of admissible mechanisms is limited to cut-off strategies. |
| Date: | 2022–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:977&r=des |
| By: | Agustin G. Bonifacio |
| Abstract: | In a one-commodity economy with single-peaked preferences and individual endowments, we study different ways in which reallocation rules can be strategically distorted by affecting the set of active agents. We introduce and characterize the family of monotonic reallocation rules and show that each rule in this class is withdrawal-proof and endowments-merging-proof, at least one is endowments-splitting-proof and that no such rule is pre-delivery-proof. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.12794&r=des |
| By: | Andrej Woerner (Ludwig Maximilian University of Munich); Sander Onderstal (University of Amsterdam); Arthur Schram (University of Amsterdam) |
| Abstract: | For reward-based crowdfunding, we introduce the strategy-proof Generalized Moulin-Shenker mechanism (GMS) and compare its performance to the prevailing All-Or-Nothing mechanism (AON). Theoretically, GMS outperforms AON in equilibrium profit and funding success. We test these predictions experimentally, distinguishing between a sealed-bid and a dynamic version of GMS. We find that the dynamic GMS outperforms the sealed-bid GMS. It performs better than AON when the producer aims at maximizing funding success. For crowdfunding in practice, this implies that the current standard of financing projects could be improved upon by implementing a crowdfunding mechanism that is similar to the dynamic GMS. |
| Keywords: | keywords |
| Date: | 2022–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20220084&r=des |
| By: | Yotam Gafni; Moshe Tennenholtz |
| Abstract: | A celebrated known cognitive bias of individuals is that the pain of losing is psychologically higher than the pleasure of gaining. In robust decision making under uncertainty, this approach is typically associated with the selection of safety (aka security) level strategies. We consider a refined notion, which we term loss aversion, capturing the fact that when comparing two actions an agent should not care about payoffs in situations where they lead to identical payoffs, removing trivial equivalencies. We study the properties of loss aversion, its relations to other robust notions, and illustrate its use in auctions and other settings. Moreover, while loss aversion is a classical cognitive bias on the side of decision makers, the problem of economic design is to maximize social welfare when facing self-motivated participants. In online environments, such as the Web, participants' incentives take a novel form originating from the lack of clear agent identity -- the ability to create Sybil attacks, i.e., the ability of each participant to act using multiple identities. It is well-known that Sybil attacks are a major obstacle for welfare-maximization. Our major result proves that the celebrated VCG mechanism is welfare maximizing when agents are loss-averse, even under Sybil attacks. Altogether, our work shows a successful fundamental synergy between cognitive bias/robustness under uncertainty, economic design, and agents' strategic manipulations in online multi-agent systems. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.15181&r=des |
| By: | Péter Eso; Chris Wallace |
| Abstract: | We introduce a model of competitive equilibrium in a market for a divisible good in which both buyer and seller may possess concealable hard information about the state of the market. When an agent knows the state he or she can verifiably disclose it, but an absence of evidence cannot be proved. Agents endogenously determine which states to disclose and conceal (if informed), and the market price at which they trade reflects that. Under general conditions we establish the existence of an equilibrium consisting of disclosure rules, consistent beliefs, contingent market prices, supply and demand decisions. In an extended example we fully characterize these objects. As an agent becomes better able to discover concealable evidence he or she discloses a larger set of states. The other side of the market becomes more suspicious that unfavourable evidence is being concealed; the resulting pressure on the market price alters the optimal disclosure rule on both sides, and trade can be reduced even when prices do not change. |
| Date: | 2022–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:980&r=des |