Auction design with costly preference elicitation

We consider auction design in a setting with costly preference elicitation. Well designed auctions can help to avoid unnecessary elicitation while determining efficient allocations. Careful design can also lead to more efficient outcomes when elicitation is too costly to permit perfect allocative efficiency. An incremental revelation principle is developed and used to motivate the role of proxied and indirect auction designs. Proxy agents, situated between bidders and an auction, can be used to maintain partial information about bidder preferences, to compute equilibrium bidding strategies based on the available information, and to elicit additional preference information as required. We derive information-theoretic elicitation policies for proxy agents under a simple model of costly elicitation across different auction designs. An experimental analysis demonstrates that indirect mechanisms, such as ascending-price auctions, can achieve better allocative efficiency with less preference elicitation than sealed-bid (direct) auctions because they promote better decisions about preference elicitation.

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