Combinatorial auctions with endowment effect

Moshe Babaioff, Shahar Dobzinski, Sigal Oren

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

4 Scopus citations

Abstract

We study combinatorial auctions with bidders that exhibit endowment effect. In most of the previous work on cognitive biases in algorithmic game theory (e.g., [Kleinberg and Oren, EC'14] and its follow-ups) the focus was on analyzing the implications and mitigating their negative consequences. In contrast, in this paper we show how in some cases cognitive biases can be harnessed to obtain better outcomes. Specifically, we study Walrasian equilibria in combinatorial markets. It is well known that Walrasian equilibria exist only in limited settings, e.g., when all valuations are gross substitutes, but fails to exist in more general settings, e.g., when the valuations are submodular. We consider combinatorial settings in which bidders exhibit the endowment effect, that is, their value for items increases with ownership. Our main result shows that when the valuations are submodular, even a mild degree of endowment effect is sufficient to guarantee the existence of Walrasian equilibria. In fact, we show that in contrast to Walrasian equilibria with standard utility maximizing bidders - in which the equilibrium allocation must be efficient - when bidders exhibit endowment effect any local optimum can be an equilibrium allocation. Our techniques reveal interesting connections between the LP relaxation of combinatorial auctions and local maxima. We also provide lower bounds on the intensity of the endowment effect that the bidders must have in order to guarantee the existence of a Walrasian equilibrium in various settings.

Original languageEnglish
Title of host publicationACM EC 2018 - Proceedings of the 2018 ACM Conference on Economics and Computation
PublisherAssociation for Computing Machinery, Inc
Pages73-90
Number of pages18
ISBN (Electronic)9781450358293
DOIs
StatePublished - 11 Jun 2018
Event19th ACM Conference on Economics and Computation, EC 2018 - Ithaca, United States
Duration: 18 Jun 201822 Jun 2018

Conference

Conference19th ACM Conference on Economics and Computation, EC 2018
Country/TerritoryUnited States
CityIthaca
Period18/06/1822/06/18

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