Testing a Purportedly More Learnable Auction Mechanism

37 Pages Posted: 6 Feb 2008

See all articles by Katherine L. Milkman

Katherine L. Milkman

University of Pennsylvania - The Wharton School

Gregory M. Barron

Lax Sebenius LLC; Harvard Business School - Negotiation, Organizations & Markets Unit

James Burns

affiliation not provided to SSRN

David C. Parkes

Harvard University - Division of Engineering and Applied Sciences

Kagan Tumer

Oregon State University

Date Written: February 4, 2008

Abstract

We describe an auction mechanism in the class of Groves mechanisms that has received attention in the computer science literature because of its theoretical property of being more "learnable" than the standard second price auction mechanism. We bring this mechanism, which we refer to as the "clamped second price auction mechanism," into the laboratory to determine whether it helps human subjects learn to play their optimal strategy faster than the standard second price auction mechanism. Contrary to earlier results within computer science using simulated reinforcement learning agents, we find that both in settings where subjects are given complete information about auction payoff rules and in settings where they are given no information about auction payoff rules, subjects converge on playing their optimal strategy significantly faster in sequential auctions conducted with a standard second price auction mechanism than with a clamped second price auction mechanism. We conclude that while it is important for mechanism designers to think more about creating learnable mechanisms, the clamped second price auction mechanism in fact produces slower learning in human subjects than the standard second price auction mechanism. Our results also serve to highlight differences in behavior between simulated agents and human bidders that mechanism designers should take into account before placing too much faith in simulations to test the performance of mechanisms intended for human use.

Keywords: auctions, mechanism design, learning, experimental economics

Suggested Citation

Milkman, Katherine L. and Barron, Gregory M. and Burns, James and Parkes, David C. and Tumer, Kagan, Testing a Purportedly More Learnable Auction Mechanism (February 4, 2008). Harvard Business School NOM Working Paper No. 08-064, Available at SSRN: https://ssrn.com/abstract=1090323 or http://dx.doi.org/10.2139/ssrn.1090323

Katherine L. Milkman

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104
United States

Gregory M. Barron (Contact Author)

Lax Sebenius LLC ( email )

200 Baker Avenue, Suite 301
Concord, MA 01742
United States
9782875007 (Phone)

Harvard Business School - Negotiation, Organizations & Markets Unit ( email )

Soldiers Field
Boston, MA 02163
United States

James Burns

affiliation not provided to SSRN

David C. Parkes

Harvard University - Division of Engineering and Applied Sciences ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Kagan Tumer

Oregon State University ( email )

Bexell Hall 200
Corvallis, OR 97331
United States

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