2010/02/12 by Mukund Sundararajan, M. Sundararajan, Qiqi Yan +2
Business, Management and Accounting · Computer Science · Decision Sciences · Economics, Econometrics and Finance · #Auction Theory and Applications #Computer Science and Game Theory (cs.GT) #Consumer Market Behavior and Pricing #FOS: Computer and information sciences #J.4 #Law, Economics, and Judicial Systems #cs.GT
paper · pdf · doi:10.48550/arxiv.1002.2477
openalex publication_date 2010/02/12 · arxiv created 2010/04/01 · arxiv updated 2010/04/02 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
The existing literature on optimal auctions focuses on optimizing the expected revenue of the seller, and is appropriate for risk-neutral sellers. In this paper, we identify good mechanisms for risk-averse sellers. As is standard in the economics literature, we model the risk-aversion of a seller by endowing the seller with a monotone concave utility function. We then seek robust mechanisms that are approximately optimal for all sellers, no matter what their levels of risk-aversion are. We have two main results for multi-unit auctions with unit-demand bidders whose valuations are drawn i.i.d. from a regular distribution. First, we identify a posted-price mechanism called the Hedge mechanism, which gives a universal constant factor approximation; we also show for the unlimited supply case that this mechanism is in a sense the best possible. Second, we show that the VCG mechanism gives a universal constant factor approximation when the number of bidders is even only a small multiple of the number of items. Along the way we point out that Myerson's characterization of the optimal mechanisms fails to extend to utility-maximization for risk-averse sellers, and establish interesting properties of regular distributions and monotone hazard rate distributions.