Fair Division Fair Division What is a fair way for 2 people to - PowerPoint PPT Presentation

Fair Division

Fair Division • What is a fair way for 2 people to split a heterogenous, divisible good? • Why not 50/50? • I Cut, You Choose Protocol • Player I told to split the good into two pieces A and B such that v(A) = v(B) = ½ v(A U B). • Player II picks his favorite of A and B. • Player I takes the other piece.

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Auctions • Ancient mechanism for buying and selling goods. • In modern times, used for many economics transactions. • In the age of the Internet, we can buy and sell goods and services via auctions online, e.g. using eBay • Companies. like Google and Microsoft use ad auctions to sell advertisement slots that will appear alongside your search results. • All major search engines and social networking sites (e.g. Facebook) make most of their money from running real-time auctions used to sell online advertisements. • Consequence: auctions are a major driver of modern Internet economy. • Why use an auction as opposed to simply fixing prices?

Why might a sell user an auction as opposed to fixing a price? • Because sellers don’t know how much buyers value their goods and don’t want to risk setting prices that are too low (leaving money on the table) or too high (nobody buys). • Auction is technique for dynamically setting prices. • In Internet settings, where the participants in the auction are computer programs or individuals who don’t know each other, price- setting is particularly difficult and this is what motivates auctions.

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