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Full-Text Articles in Social and Behavioral Sciences
Efficient Dynamic Auctions, Dirk Bergemann, Juuso Välimäki
Efficient Dynamic Auctions, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider the truthful implementation of the socially efficient allocation in a dynamic private value environment in which agents receive private information over time. We show that a suitable generalization of the Vickrey-Clark-Groves mechanism, based on the marginal contribution of each agent, leads to truthtelling in every period. A leading example of a dynamic allocation model is the sequential auction of a single good in which the current winner of the object receives additional information about her valuation. We show that a modified sequential second price auction in which only the current winner makes a positive payment leads to truthtelling. …
Bandit Problems, Dirk Bergemann, Juuso Välimäki
Bandit Problems, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We survey the literature on multi-armed bandit models and their applications in economics. The multi-armed bandit problem is a statistical decision model of an agent trying to optimize his decisions while improving his information at the same time. This classic problem has received much attention in economics as it concisely models the trade-off between exploration (trying out each arm to find the best one) and exploitation (playing the arm believed to give the best payoff).
Informational Herding And Optimal Experimentation, Lones Smith, Peter Norman Sorensen
Informational Herding And Optimal Experimentation, Lones Smith, Peter Norman Sorensen
Cowles Foundation Discussion Papers
We show that far from capturing a formally new phenomenon, informational herding is really a special case of single-person experimentation — and ‘bad herds’ the typical failure of complete learning. We then analyze the analogous team equilibrium, where individuals maximize the present discounted welfare of posterity. To do so, we generalize Gittins indices to our non-bandit learning problem, and thereby characterize when contrarian behaviour arises: (i) While herds are still constrained efficient, they arise for a strictly smaller belief set. (ii) A log-concave log-likelihood ratio density robustly ensures that individuals should lean more against their myopic preference for an action …