Economic mechanism design

Designing markets and games to achieve what we collectively want from what we individually want

September 22, 2014 — October 7, 2024

economics
faster pussycat
game theory
incentive mechanisms
institutions
Figure 1

Theory of incentive mechanisms, where we can plug numbers into sufficiently abstract models and maybe extract computational complexity results, and get economic optimality as a side effect. Or the other way around.

Every blockchain-style cryptowhatsit is a mechanism design problem. Better governance is a mechanism design problem.

I would like to keep this page for the provable and elegant pure economic arguments; but in reality we face a much more heuristic, messy world, where we do not simply solve for economic optimality, but also for political feasibility. I think of that as soft mechanism design.

1 Public goods

See public goods for more.

Figure 2: Mecha design, courtesy blueprintbox.

2 Voting systems

See voting systems.

3 Fair division

Especially cake-cutting.

4 In machine learning

For now, see adversarial learning and adversarial networks.

5 Tutorials

Aaron Roth’s Algorithmic Game theory course:

In this course, we will take an algorithmic perspective on problems in game theory. We will consider questions such as: how should an auction for scarce goods be structured if the seller wishes to maximize his revenue? How badly will traffic be snarled if drivers each selfishly try to minimize their commute time, compared to if a benevolent dictator directed traffic? How can couples be paired so that no two couples wish to swap partners in hindsight? How can you be as successful at betting on horse races as the best horse racing expert, without knowing anything about horse racing? How can we set prices so that all goods get sold, and everyone gets their favorite good?

Figure 3: A mechanism incentivising coordination.

6 Quota tokens

Case study. One that I studied in my honours thesis back in the day was the transferred quota system for fisheries management. This is a system where the government sets a total allowable catch for a fishery, and then divides this up into individual quotas that can be traded. It is an elegant system; it looks like it makes the fishers internalise the externalities of overfishing, and it can be shown to be efficient in a competitive equilibrium.

7 Incoming

8 References

Arthur. 1995. “Complexity in Economic and Financial Markets.” Complexity.
Atanasov, Rescober, Stone, et al. 2015. Distilling the Wisdom of Crowds: Prediction Markets Versus Prediction Polls.” Academy of Management Proceedings.
Aziz. 2020. Developments in Multi-Agent Fair Allocation.” In Proceedings of the AAAI Conference on Artificial Intelligence.
Aziz, Biró, de Haan, et al. 2019. Pareto Optimal Allocation Under Uncertain Preferences: Uncertainty Models, Algorithms, and Complexity.” Artificial Intelligence.
Aziz, Bouveret, Caragiannis, et al. 2018. Knowledge, Fairness, and Social Constraints.” Proceedings of the AAAI Conference on Artificial Intelligence.
Aziz, and Brandl. 2012. Existence of Stability in Hedonic Coalition Formation Games.”
Aziz, Brandl, Brandt, et al. 2018. On the Tradeoff Between Efficiency and Strategyproofness.” Games and Economic Behavior.
Aziz, Brandt, and Harrenstein. 2013. Pareto Optimality in Coalition Formation.” In Games and Economic Behavior.
Aziz, Caragiannis, Igarashi, et al. 2021. Fair Allocation of Combinations of Indivisible Goods and Chores.”
Aziz, and de Keijzer. 2011. Complexity of Coalition Structure Generation.”
Aziz, and Rey. 2019. Almost Group Envy-Free Allocation of Indivisible Goods and Chores.”
Berg. 2003. “Normative Behavioral Economics.” The Journal of Socio-Economics.
Börgers. 2015. An Introduction to the Theory of Mechanism Design.
Boutilier, Caragiannis, Haber, et al. 2015. Optimal Social Choice Functions: A Utilitarian View.” Artificial Intelligence.
Brandt, and Bullinger. 2022. Finding and Recognizing Popular Coalition Structures.” Journal of Artificial Intelligence Research.
Buterin, Hitzig, and Weyl. 2019. A Flexible Design for Funding Public Goods.” Management Science.
Cai, Daskalakis, and Weinberg. 2013. Understanding Incentives: Mechanism Design Becomes Algorithm Design.” arXiv:1305.4002 [Cs].
Caragiannis, Nath, Procaccia, et al. 2017. Subset Selection Via Implicit Utilitarian Voting.” Journal of Artificial Intelligence Research.
Challet, Marsili, and Zhang. 2000. “Modeling Market Mechanism with Minority Game.” Physica A: Statistical and Theoretical Physics.
Daskalakis, Deckelbaum, and Tzamos. 2012a. Optimal Pricing Is Hard.” In Internet and Network Economics.
———. 2012b. The Complexity of Optimal Mechanism Design.” arXiv:1211.1703 [Cs].
———. 2013. Mechanism Design via Optimal Transport.” In.
Dean, and Morgenstern. 2022. Preference Dynamics Under Personalized Recommendations.”
Eilat, and Rosenfeld. 2023. Performative Recommendation: Diversifying Content via Strategic Incentives.”
Gasparyan, Gerasimov, Voronov, et al. 2015. Rewarding Peer Reviewers: Maintaining the Integrity of Science Communication.” Journal of Korean Medical Science.
Gemp, McWilliams, Vernade, et al. 2020. EigenGame: PCA as a Nash Equilibrium.” In.
Gode, and Sunder. 1993. Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality.” The Journal of Political Economy.
———. 1997. “What Makes Markets Allocationally Efficient?” The Quarterly Journal of Economics.
Goldbaum. 2004. On the Possibility of Informationally Efficient Markets.” Working Papers Rutgers University, Newark 2004-009.
Goldman, and Procaccia. 2015. Spliddit: Unleashing Fair Division Algorithms.” ACM SIGecom Exchanges.
Hagens. 2020. Economics for the Future – Beyond the Superorganism.” Ecological Economics.
Hanson. 2012. Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation.” The Journal of Prediction Markets.
Hron, Krauth, Jordan, et al. 2022. Modeling Content Creator Incentives on Algorithm-Curated Platforms.”
Jackson. 2014. Mechanism Theory.” SSRN Scholarly Paper ID 2542983.
Jan. 2018. Recognition and Reward System for Peer-Reviewers.” In CEUR Workshop Proceedings.
Lindner, and Rothe. 2016. Cake-Cutting: Fair Division of Divisible Goods.” In Economics and Computation: An Introduction to Algorithmic Game Theory, Computational Social Choice, and Fair Division. Springer Texts in Business and Economics.
Maital. 1986. Prometheus Rebound: On Welfare-Improving Constraints.” Eastern Economic Journal.
Mcleod, Emmerson, Kohn, et al. 2008. “Finding the Invisible Hand: An Objective Model of Financial Markets.”
Merrifield, and Saari. 2009. Telescope Time Without Tears: A Distributed Approach to Peer Review.” Astronomy & Geophysics.
Milgrom. 2019. Auction Market Design: Recent Innovations.” Annual Review of Economics.
Nickerson, and Solomon. 2020. Car Seats as Contraception.” SSRN Electronic Journal.
Nisan. 2007. Algorithmic Game Theory.
Ohsawa. 2021. Unbiased Self-Play.” arXiv:2106.03007 [Cs, Econ, Stat].
Procaccia, Shah, and Zick. 2016. Voting Rules as Error-Correcting Codes.” Artificial Intelligence.
Raghavan. 2021. The Societal Impacts of Algorithmic Decision-Making.”
Roughgarden, and Talgam-Cohen. 2019. Approximately Optimal Mechanism Design.” Annual Review of Economics.
Sadrieh. 1998. The Alternating Double Auction Market: A Game Theoretic and Experimental Investigation (Lecture Notes in Economics and Mathematical Systems).
Shah, Nisarg. 2017. Spliddit: Two Years of Making the World Fairer.” XRDS: Crossroads, The ACM Magazine for Students.
Shah, Nihar B. 2022. Challenges, Experiments, and Computational Solutions in Peer Review.” Communications of the ACM.
Solomon. 2007. The Role of Peer Review for Scholarly Journals in the Information Age.” Journal of Electronic Publishing.
Su. 1999. Rental Harmony: Sperner’s Lemma in Fair Division.” The American Mathematical Monthly.
Sun. 2014. To Divide the Rent, Start With a Triangle.” The New York Times.
Weyl. 2017. The Robustness of Quadratic Voting.” Public Choice.
Wojtowicz, Chater, and Loewenstein. 2019. Boredom and Flow: An Opportunity Cost Theory of Attention-Directing Motivational States.” SSRN Scholarly Paper.
Xiao, Dörfler, and van der Schaar. 2014. Incentive Design in Peer Review: Rating and Repeated Endogenous Matching.” arXiv:1411.2139 [Cs].
Xu, Ruqing, and Dean. 2023. Decision-Aid or Controller? Steering Human Decision Makers with Algorithms.”
Xu, Yichong, Zhao, and Shi. 2017. “Mechanism Design for Paper Review.”
Ye. 2008. A Path to the Arrow–Debreu Competitive Market Equilibrium.” Mathematical Programming.
Zhuang, and Hadfield-Menell. 2021. Consequences of Misaligned AI.”