Hal R. Varian
Abstract
Distributed algorithmic mechanism design is a field at the intersection of computer science and economics.
Index Terms
- Designing the perfect auction
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Reviews
Bruce E. Litow
This short article does three rather interesting things. First, it presents the concept of algorithmic mechanism theory as an inverse of game theory. Game theory, growing out of pioneering work by von Neumann in the 1940s, is a mathematical treatment of the outcomes of games played according to rules. In mechanism theory, a set of outcomes is proposed and one seeks to define a game (rules) such that the outcomes are achieved. Varian presents this concept through a very interesting and important instance: Web-based auctions. Second, the article provides definitions for several types of auctions, and points out that certain reducibilities are obtained among some of them (one type can be reduced to another type). Third, the article discusses mechanism theory applied to auctions in terms of reducing or eliminating "bad behaviors" on the part of participants. These considerations have partly to do with combinatorial, computational, economic, and psychological issues. As an example of this fascinating mix of disciplines, Varian notes that multiparty auctions rarely have stable optimum outcomes; something like Pareto optimal positions from economic equilibrium theory, where all players are indifferent to varying their individual states, is an appropriate substitute for stability. Online Computing Reviews Service
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