Google and Mises
It's fun how this article in the International Herald Tribune draws a link between Ludwig von Mises and Google's advertising algorithms--the technology that is the very future of commerce--via the work of Leonid Hurwicz. "It was a course in economics that fired his imagination, however, and he went to the London School of Economics, where his teachers were Nicholas Kaldor and Friedrich Hayek. In 1939, Hurwicz moved to Geneva, where he studied at the Graduate Institute of International Studies and attended the seminar of Ludwig von Mises."
For more on mechanism design, see this excellent piece by Robert Murphy.
Comments (2)
fundamentalist
The problem with applying game theory to real life is that the math and logic required for more than two players gets overwhelmingly complex. That why the auction example focuses on the two bidders and ignores the seller. What is pareto-efficient if you include the seller? That would depend on how the seller valued the painting. How would you arrange the auction so that it was pareto-efficient for three people, the two bidders and the seller?
And what happens if neither bidder nor the seller places a value on the object, but the seller wants to get the highest price possible (he just needs cash) and the bidders want nothing more than to get the lowest price possible? The Dutch auction solved this problem centuries ago. In a Dutch auction, everyone is silent while the auctioneer starts from a very high price and works his way down. The first person to bid wins.
Published: June 26, 2008 9:54 AM
Mike Blakeney
Fundamentalist: I think that while your general objection is right on, your specific example is solved easily enough by the common practice of using a reserve price, or a price below which the seller will not trade. So in an English (ascending bid, second price) auction, the bidding starts at $X, specified by the seller, and in the Dutch (descending bid, first price), the clock stops at $X. That way, the seller is not obliged to sell for less than the object is worth to him.
Published: June 26, 2008 12:45 PM