Verifying Approximate Equilibrium in Auctions

TL;DR

This paper introduces a novel, sample-based framework for verifying approximate equilibria in complex auctions, accounting for strategic bidding and interdependent priors, with theoretical error bounds and broad applicability.

Contribution

It presents the first method to verify approximate equilibrium in diverse auction types using samples, considering strategic and interdependent priors, with PAC-learning error bounds.

Findings

Developed a framework for estimating utility gains from strategic deviations.

Provided error bounds for approximate equilibrium verification using PAC-learning.

First method to verify approximate equilibrium in various auction formats beyond single-item.

Abstract

In practice, most auction mechanisms are not strategy-proof, so equilibrium analysis is required to predict bidding behavior. In many auctions, though, an exact equilibrium is not known and one would like to understand whether -- manually or computationally generated -- bidding strategies constitute an approximate equilibrium. We develop a framework and methods for estimating the distance of a strategy profile from equilibrium, based on samples from the prior and either bidding strategies or sample bids. We estimate an agent's utility gain from deviating to strategies from a constructed finite subset of the strategy space. We use PAC-learning to give error bounds, both for independent and interdependent prior distributions. The primary challenge is that one may miss large utility gains by considering only a finite subset of the strategy space. Our work differs from prior research in two critical ways. First, we explore the impact of bidding strategies on altering opponents' perceived prior distributions -- instead of assuming the other agents to bid truthfully. Second, we delve into reasoning with interdependent priors, where the type of one agent may imply a distinct distribution for other agents. Our main contribution lies in establishing sufficient conditions for strategy profiles and a closeness criterion for conditional distributions to ensure that utility gains estimated through our finite subset closely approximate the maximum gains. To our knowledge, ours is the first method to verify approximate equilibrium in any auctions beyond single-item ones. Also, ours is the first sample-based method for approximate equilibrium verification.