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on Economic Design |
| By: | Paul Duetting; Vahab Mirrokni; Renato Paes Leme; Haifeng Xu; Song Zuo |
| Abstract: | We investigate auction mechanisms to support the emerging format of AI-generated content. We in particular study how to aggregate several LLMs in an incentive compatible manner. In this problem, the preferences of each agent over stochastically generated contents are described/encoded as an LLM. A key motivation is to design an auction format for AI-generated ad creatives to combine inputs from different advertisers. We argue that this problem, while generally falling under the umbrella of mechanism design, has several unique features. We propose a general formalism -- the token auction model -- for studying this problem. A key feature of this model is that it acts on a token-by-token basis and lets LLM agents influence generated contents through single dimensional bids. We first explore a robust auction design approach, in which all we assume is that agent preferences entail partial orders over outcome distributions. We formulate two natural incentive properties, and show that these are equivalent to a monotonicity condition on distribution aggregation. We also show that for such aggregation functions, it is possible to design a second-price auction, despite the absence of bidder valuation functions. We then move to designing concrete aggregation functions by focusing on specific valuation forms based on KL-divergence, a commonly used loss function in LLM. The welfare-maximizing aggregation rules turn out to be the weighted (log-space) convex combination of the target distributions from all participants. We conclude with experimental results in support of the token auction formulation. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.10826&r=des |
| By: | Giese, Julia (Bank of England); Grace, Charlotte (Nuffield College, University of Oxford) |
| Abstract: | We compare the product-mix auction (PMA) – the mechanism used by the Bank of England (BoE) for its Indexed Long-Term Repo (ILTR) operations – to simpler alternative auction designs, namely a pair of separate simultaneous auctions, and a ‘reference price auction’. Using data from the auctions held in June 2010 to January 2014, we find that the PMA increased welfare (defined by the difference between the spreads that financial institutions were willing to pay and the spreads that the BoE was willing to accept) by approximately 50%, or 2 basis points per loan, relative to these alternatives. We would expect larger welfare gains in a less stable period than the period studied, and simulations confirm this. Broader benefits of the auctions of reducing systemic risk, while mitigating moral hazard, informing the BoE about stress in the market, and communicating the ‘correct’ price to the market, are taken into account in our approach, to the extent that the BoE’s supply curve internalises some of these externalities. We also find that the PMA always gave the BoE more (or occasionally the same) surplus and revenue relative to if one of the alternative designs had been used. However, the effect of the PMA on aggregate bidder surplus was ambiguous. The latter result may be a property of the period studied, and of the fact that there were only two sets of eligible collateral in this period. |
| Keywords: | Product mix auction; auction design; central bank liquidity provision |
| JEL: | D44 E58 |
| Date: | 2023–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1044&r=des |
| By: | Joshua C. Yang; Carina I. Hausladen; Dominik Peters; Evangelos Pournaras; Regula Haenggli Fricker; Dirk Helbing |
| Abstract: | Digital Participatory Budgeting (PB) has become a key democratic tool for resource allocation in cities. Enabled by digital platforms, new voting input formats and aggregation have been utilised. Yet, challenges in achieving fairness and legitimacy persist. This study investigates the trade-offs in various voting and aggregation methods within digital PB. Through behavioural experiments, we identified favourable voting design combinations in terms of cognitive load, proportionality, and perceived legitimacy. The research reveals how design choices profoundly influence collective decision-making, citizen perceptions, and outcome fairness. Our findings offer actionable insights for human-computer interaction, mechanism design, and computational social choice, contributing to the development of fairer and more transparent digital PB systems and multi-winner collective decision-making process for citizens. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.03501&r=des |
| By: | Ahmed S. Alahmed; Guido Cavraro; Andrey Bernstein; Lang Tong |
| Abstract: | We propose an operating-envelope-aware, prosumer-centric, and efficient energy community that aggregates individual and shared community distributed energy resources and transacts with a regulated distribution system operator (DSO) under a generalized net energy metering tariff design. To ensure safe network operation, the DSO imposes dynamic export and import limits, known as dynamic operating envelopes, on end-users' revenue meters. Given the operating envelopes, we propose an incentive-aligned community pricing mechanism under which the decentralized optimization of community members' benefit implies the optimization of overall community welfare. The proposed pricing mechanism satisfies the cost-causation principle and ensures the stability of the energy community in a coalition game setting. Numerical examples provide insights into the characteristics of the proposed pricing mechanism and quantitative measures of its performance. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.07157&r=des |
| By: | Ashkenazi-Golan, Galit; Hernández, Penélope; Neeman, Zvika; Solan, Eilon |
| Abstract: | This paper addresses the question of how to best communicate information over time in order to influence an agent's belief and induced actions in a model with a binary state of the world that evolves according to a Markov process, and with a finite number of actions. We characterize the sender's optimal message strategy in the limit, as the length of each period decreases to zero. We show that the limit optimal strategy is myopic for beliefs smaller than the invariant distribution of the underlying Markov process. For beliefs larger than the invariant distribution, the optimal policy is more elaborate and involves both silence and splitting of the receiver's beliefs; it is not myopic. |
| Keywords: | Bayesian persuasion; information design; Markov games; repeated games with incomplete information; 2510/17; Elsevier deal |
| JEL: | D82 D83 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:119970&r=des |