Approximately Optimal Mechanism Design: Motivation, Examples, and Lessons Learned
Abstract
Optimal mechanism design enjoys a beautiful and welldeveloped theory, and also a number of killer applications. Rules of thumb produced by the field influence everything from how governments sell wireless spectrum licenses to how the major search engines auction off online advertising. There are, however, some basic problems for which the traditional optimal mechanism design approach is illsuited  either because it makes overly strong assumptions, or because it advocates overly complex designs. The thesis of this paper is that approximately optimal mechanisms allow us to reason about fundamental questions that seem out of reach of the traditional theory. This survey has three main parts. The first part describes the approximately optimal mechanism design paradigm  how it works, and what we aim to learn by applying it. The second and third parts of the survey cover two case studies, where we instantiate the general design paradigm to investigate two basic questions. In the first example, we consider revenue maximization in a singleitem auction with heterogeneous bidders. Our goal is to understand if complexity  in the sense of detailed distributional knowledge  is an essential feature of good auctions for this problem, or alternatively if there are simpler auctions that are nearoptimal. The second example considers welfare maximization with multiple items. Our goal here is similar in spirit: when is complexity  in the form of highdimensional bid spaces  an essential feature of every auction that guarantees reasonable welfare? Are there interesting cases where lowdimensional bid spaces suffice?
 Publication:

arXiv eprints
 Pub Date:
 June 2014
 arXiv:
 arXiv:1406.6773
 Bibcode:
 2014arXiv1406.6773R
 Keywords:

 Computer Science  Computer Science and Game Theory;
 Computer Science  Data Structures and Algorithms
 EPrint:
 Based on a talk given by the author at the 15th ACM Conference on Economics and Computation (EC), June 2014