
Issues in Computational Vickrey Auctions Tuomas Sandholm [email protected] Washington University Department of Computer Science St. Louis, MO 63130-489 9 This material is based up on work supp orted by the National Science Foundation under CAREER Award IRI- 9703122, Grant IRI-9610122, and Grant I IS-9800994. A short early version of this pap er app eared at a conference [ ] 45 . 1 Issues in Computational Vickrey Auctions Abstract The Vickrey auction has b een widely advo cated for multiagent systems. First we review its limitations so as to guide practitioners in their decision of when to use that proto col. These limitations include lower revenue than alternative proto cols, lying in non-private-value auctions, bidder collusion, a lying auctioneer, and undesirable revelation of sensitive information. We discuss the sp ecial characteristics of Internet auctions: third party auction servers, cryptography, and how proxy agents relate to the revelation principle and fail to promote truth-telling. Then we uncover limitations of the proto col which stem from computational complexity con- siderations. These include inecient allo cation and lying in sequential auctions of interrelated items, untruthful bidding under valuation uncertainty, and countersp eculation to make delib er- ation control or information gathering decisions. We also discuss metho ds for winner and price determination in combinatorial \second-price" auctions, with implication s on truth-dominance. Keywords: Auction, multiagent system, proxy bidder, winner determination, electronic commerce. 2 1 Intro duction Auctions provide ecient, distributed and autonomy preserving ways of solving task and resource allo cation problems in multiagent systems. While xed-menu take-it-or-leave-it o ers are still quite common in electronic commerce, auctions are the leading vehicle for dynamically priced electronic trades. Electronic auctions are used for consumer-to-consumer, business-to-consumer, and business- to-business electronic commerce, and the success of recentInternet auction companies has b een phenomenal. Auctions can b e used among co op erative agents, but they also work in op en systems consisting of self-interested agents. An auction can b e analyzed using nonco op erative game theory: what strategies are self-interested agents b est o using in the auction and therefore will use, and will a desirable so cial outcome|e.g. ecient allo cation|still follow. The goal is to design the proto cols mechanisms of the interaction so that desirable so cial outcomes followeven though each agent acts based on self-interest. This pap er servers three roles: 1. It reviews the known limitations of the Vickrey auction proto col, i.e. the second-price sealed- bid auction. Vickrey auctions have b een widely advo cated and adopted for use in computa- [ ] tional multiagent systems 62, 17, 13, 58, 1, 9, 8, 56, 36, 20, 21 . The metho ds and frequency of adoption suggest that the limitations are not well understo o d by the multiagent systems and electronic commerce communities. Understanding the shortcomings is imp ortant in or- der not to ascrib e desirable characteristics|such as truth-dominance and countersp eculation avoidance|to a proto col when the proto col really do es not guarantee them in the setting in question. Misapplications of proto cols op en the do or for manipulationby the agents, which may lead to inecient outcomes and pro cesses. While this pap er fo cuses on the limitations of the Vickrey auction, there are some auction settings where that proto col is desirable. The explication of the limitations will hop efully help practitioners distinguish when the Vickrey auction is and is not appropriate. 2. It discusses how computational auctions|p otentially among computerized agents as bidders 3 and/or auctioneers|in settings like the Internet di er from traditional auctions among hu- mans, and how these di erences a ect the choice of auction proto cols. Issues of proxy bidders, cryptographic techniques, and trusted third party auction servers are discussed. 3. Perhaps most imp ortantly, it uncovers new limitations of the Vickrey auction that stem from computational complexity and information gathering considerations. While the computational questions apply to auctions among humans as well, they emerge particularly clearly in multia- gent systems b ecause the bidders' and/or auctioneer's algorithms need to b e constructed, and b ecause the agents' cognitive capabilities can b e analytically characterized. 1 An auction consists of an auctioneer and p otential bidders. Auctions are usually discussed regarding situations where the auctioneer wants to sell an item and get the highest p ossible payment for it while each bidder wants to acquire the item at the lowest p ossible price. However, settings in which the auctioneer wants to sub contract out a task at the lowest p ossible price and each bidder wants to handle the task at the highest p ossible payment, are totally analogous. The rest of the pap er is organized as follows. Section 2 reviews di erent auction settings and proto cols. Section 3 details the known problems regarding the Vickrey auction. These problems have b een discovered by auction theorists and practitioners, and they have led to the lack of deployment of Vickrey auctions among humans. The rst problem is lower revenue than alternative proto cols Section 3.1. Section 3.2 discusses currentInternet auctions and how the simple proxy agents relate to the revelation principle, and how they fail to incent truthful bidding. The other problems discussed in the rst part of the pap er include lying in non-private-value auctions Section 3.3, bidder collusion Section 3.4, an untruthful auctioneer Section 3.5, and the necessity to reveal sensitive information Section 3.6. The wide advo cation of Vickrey auctions in multiagent systems suggests that these limitations have not b een fully assimilated by the builders of multiagent systems. The rst part of the pap er serves as a reminder for practitioners. The second part Section 4 fo cuses on limitations that arise mainly from computational con- 1 There are also auctions with multiple bid takers, i.e. auctioneers. 4 siderations. The rst of these problems is inecient allo cation and lying in sequential auctions of interrelated items Section 4.1. That section also discusses combinatorial auctions, algorithms for winner determination, fully expressive bidding languages, and the impacts of approximate winner determination on truth-dominance. The computational complexities of bidding are also elab orated. Section 4.2 shows howuntruthful bidding can b e b ene cial when a bidder's valuation is uncertain. Finally, Section 4.3 shows how countersp eculation is needed for deciding on delib eration actions and information gathering actions. 2 Auction settings and proto cols There are three qualitatively di erent auction settings dep ending on how an agent's value of the auctioned item is formed. In private value auctions, the value of the go o d dep ends only on the agent's own preferences. An example is auctioning o a cake that the winning bidder will eat. The key is that the winning bidder will not resell the item or get utility from showing it o to others, b ecause in such cases the value would dep end on other agents' valuations. The agent is often assumed to know its value for the go o d exactly. On the other hand, in common value auctions, an agent's value of an item dep ends entirely on other agents' values of it: all agents have the same value for the item. Auctioning treasury bills is an example: nob o dy inherently prefers having the bills, and the value of the bill comes entirely from reselling p ossibilities. In correlated value auctions, an agent's value dep ends partly on its own preferences and partly on others' values. For example, a negotiation within a contracting setting ful lls this criterion. An agentmay handle a task itself in which case its lo cal concerns de ne the cost of handling the task. On the other hand, the agent can recontract out the task in which case the cost dep ends solely on other agents' valuations. The rest of this section reviews four simple auction proto cols from the literature for allo cating 5 a single item. The following sections compare their prop erties in the di erent settings discussed ab ove. In the English rst-priceopen-cry auction, each bidder is free to raise his bid. When no bidder is willing to raise anymore, the auction ends, and the highest bidder wins the item at the price of his bid. An agent's strategy is a series of bids as a function of his private value, his prior estimates of other bidder's valuations, and the past bids of others. In private value English auctions, an agent's dominant strategy is to always bid a small amount more than the current highest bid, and stop when his private value price is reached. These strategies lead to the bidding ending when the second highest bidder's valuation plus epsilon has b een reached. In correlated value auctions the rules are often varied to make the auctioneer increase the price at a constant rate or at a rate he thinks appropriate. Also, sometimes open-exit is used where a bidder has to op enly declare exiting without a re-entering p ossibility. The motivation b ehind these variations is to make more information ab out the bidders' valuations public. This information will signal to a bidder ab out the item's value. In the rst-pricesealed-bid auction, each bidder submits one bid without knowing the others' bids. The highest bidder wins the item and pays the amount of his bid.
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