MGTECON 615 - Topics in Market Design
Spring 2009
Prof. Michael Ostrovsky

1. Prediction markets (4/6 and 4/13)

Background reading: Justin Wolfers and Eric Zitzewitz (2004), "Prediction Markets", Journal of Economic Perspectives.

Theoretical foundations

* Robert Aumann  (1976), "Agreeing to Disagree", Annals of Statistics.

* John Geanakoplos and Heraklis Polemarchakis (1982), "We Can't Disagree Forever", JET.

* Lars Tyge Nielsen et al. (1990), "Common Knowledge of an Aggregate of Expectations", Econometrica.

* Paul Milgrom and Nancy Stokey (1982), "Information, Trade and Common Knowledge", JET.

* Albert Kyle (1985), "Continuous Auctions and Insider Trading", Econometrica.

* F. Douglas Foster and S. Viswanathan (1996), "Strategic Trading When Agents Forecast the Forecasts of Others", Journal of Finance.

* Kerry Back, C. Henry Cao, and Gregory A. Willard (2000), "Imperfect Competition among Informed Traders", Journal of Finance.

* Robin Hanson (2007), "Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation", Journal of Prediction Markets.

* David Pennock (2006), "Implementing Hanson's Market Maker", blog post.

Yiling Chen and David Pennock (2007). "A Utility Framework for Bounded-Loss Market Makers," Proceedings of the 23rd Conference on Uncertainty in Artificial Intelligence.

* Y. Chen, D. Reeves, D. Pennock, R. Hanson, L. Fortnow, and R. Gonen (2007), "Bluffing and Strategic Reticence in Prediction Markets", WINE '07.

* Stanko Dimitrov and Rahul Sami (2008), "Non-myopic Strategies in Prediction Markets", ACM EC '08.

* Michael Ostrovsky (2009), "Information Aggregation in Dynamic Markets with Strategic Traders", working paper. *Slides*

Rene Caldentey and Ennio Stacchetti (2008), "Insider Trading with a Random Deadline", working paper.

Empirical Evidence and Other Designs

Continuous double auctions

Kay-Yut Chen and Charles Plott (2002), "Information Aggregation Mechanisms: Concepts, Design, and Implementation for a Sales Forecasting Problem", working paper.

Bo Cowgill, Justin Wolfers, and Eric Zitzewitz (2008), "Using Prediction Markets to Track Information Flows: Evidence from Google", working paper.

Parimutuel betting markets

Charles Plott, Jorgen Wit, and Winston Yang (2003), "Parimutuel Betting Markets as Information Aggregation Devices: Experimental Results," Economic Theory.

David Pennock (2004), "A Dynamic pari-mutuel market for hedging, wagering, and information aggregation", ACM EC'04.

2. Information in auctions (4/20 and 4/27)

Background reading 1: Tim Loughran and Jay Ritter (2004), "Why Has IPO Underpricing Changed Over Time?", Financial Management.

Background reading 2: Joe Nocera (2006), "Open and Fair: Why Wall St. Hates Auctions", New York Times.

Background reading 3: Rackspace IPO (took place in the Spring and Summer of 2008)

Background reading 4: Ravi Jagannathan, Andrei Jirnyi, and Ann E. Sherman (2009), "Why Have IPO Auctions Failed the Market Test?", working paper.

Background reading 5: John C. Rudolf (2009), "Auctions for Troubled Property Loans Jump to the Web", New York Times.

Survey: Dirk Bergemann and Juuso Valimaki (2007), "Information in Mechanism Design", in Proceedings of the 9th World Congress of the Econometric Society.

Information aggregation

* Franklin Allen, Stephen Morris, and Hyun Song Shin (2006), "Beauty Contests and Iterated Expectations in Asset Markets", Review of Financial Studies.

Robert Wilson (1977), "A Bidding Model of Perfect Competition", Review of Economic Studies.

Wolfgang Pesendorfer and Jeroen Swinkels (1997), "The Loser's Curse and Information Aggregation in Common Value Auctions", Econometrica.

Ilan Kremer (2002), "Information Aggregation in Common Value Auctions", Econometrica.

R.M. Harstad, A. Pekec, and I. Tsetlin (2008), "Information Aggregation in Auctions with an Unknown Number of Bidders", Games and Economic Behavior.

* Philip J. Reny and Motty Perry (2006), "Toward a Strategic Foundation for Rational Expectations Equilibrium", Econometrica.

Information acquisition

* Paul R. Milgrom (1981), "Rational Expectations, Information Acquisition, and Competitive Bidding", Econometrica.

* Matthew O. Jackson (2003), "Efficiency and information aggregation in auctions with costly information", Review of Economic Design.

* Dirk Bergemann, Xianwen Shi, and Juuso Valimaki (2009), "Information acquisition in interdependent value auctions", Journal of the European Economic Association.

* Dirk Bergemann and Juuso Valimaki (2002), "Information acquisition and efficient mechanism design", Econometrica.

* Nicola Persico (2000), "Information acquisition in auctions", Econometrica.

* Olivier Compte and Philippe Jehiel (2007), "Auctions and information acquisition: sealed bid or dynamic formats?", RAND Journal of Economics.

Jeremy Bulow and Paul Klemperer (2009), "Why Do Sellers (Usually) Prefer Auctions?", AER, forthcoming.

Information disclosure

Vlad Mares and Ronald M. Harstad (2003), "Private information revelation in common-value auctions", JET.

* Peter Eso and Balazs Szentes (2007), "Optimal Information Disclosure in Auctions and the Handicap Auction", Review of Economic Studies.

Dirk Bergemann and Martin Pesendorfer (2007), "Information Structures in Optimal Auctions", JET.

* Simon Board (2009), "Revealing information in auctions: the allocation effect", Economic Theory.

3. Sponsored search auctions (5/4)

Background reading 1: Benjamin Edelman and Michael Ostrovsky (2007), "Strategic Bidder Behavior in Sponsored Search Auctions", Decision Support Systems.

Background reading 2: Benjamin Edelman, Michael Ostrovsky, and Michael Schwarz (2007), "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords", AER.

Background reading 3: Hal R. Varian (2007), "Position Auctions", IJIO.

* Mehmet B. Yenmez (2009), "Pricing in Position Auctions and Online Advertising", working paper.

* Renato Gomes and Kane Sweeney (2009), "Bayes-Nash Equilibria of the Generalized Second Price", working paper (not available).

* Przemyslaw Jeziorski (guest speaker) and Ilya Segal (2009), "What Makes Them Click: Empirical Analysis of Consumer Demand for Search Advertising", working paper.

* Michael Ostrovsky and Michael Schwarz (2009), "Optimal Auction Design: A Field Experiment", working paper (not available). 

4. Combinatorial Auctions (5/11, guest lecture by Paul Milgrom)

* John Kagel, Yuanchuan Lien, and Paul Milgrom (2009), "Ascending Prices and Package Bidding: An Experimental Analysis", working paper. [Data files, Instructions]

5. Voting mechanisms (5/18)

Background reading 1: Michel Balinski and Rida Laraki (2007), "A theory of measuring, electing, and ranking", PNAS.

Background reading 2: Section 2 ("Institutional Background") of Gregor Matvos and Michael Ostrovsky (2008), "Strategic Proxy Voting", working paper.

Background reading 3: Doron Levit and Nadya Zhukova (2009), "Non-Binding Shareholder Voting", working paper.

Theoretical literature on strategic voting

* David Austen-Smith and Jeffrey S. Banks (1996), "Information Aggregation, Rationality, and the Condorcet Jury Theorem", American Political Science Review.

* Timothy J. Feddersen and Wolfgang Pesendorfer (1998), "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts under Strategic Voting", APSR.

* Timothy J. Feddersen and Wolfgang Pesendorfer (1996), "The Swing Voter's Curse", AER.

Mark Fey and Jaehoon Kim (2002), "The Swing Voter's Curse: Comment", AER.

Timothy J. Feddersen and Wolfgang Pesendorfer (1997), "Voting Behavior and Information Aggregation in Elections with Private Information", Econometrica.

Vijay Krishna and John Morgan (2008), "Voluntary Voting: Costs and Benefits", working paper.

* Ernst Maug and Bilge Yilmaz (2002), "Two-Class Voting: A Mechanism for Conflict Resolution", AER.

* John Morgan and Phillip Stocken (2008), "Information Aggregation in Polls", AER.

Hao Li (2001), "A Theory of Conservatism", JPE.

Nicola Persico (2004), “Committee Design with Endogenous Information”, Review of Economic Studies.

* Eddie Dekel and Michele Piccione (2000), "Sequential Voting Procedures in Symmetric Binary Elections", JPE.

Dino Gerardi and Leeat Yariv (2007), "Deliberative Voting", JET.

Alex Gershkov and Balazs Szentes (2009), "Optimal Voting Schemes with Costly Information Acquisition", JET.

6. Matching (6/1)

Non-cooperative approaches

* Guillaume Haeringer and Myrna Wooders (2009), "Decentralized Job Matching", working paper.

Joana Pais (2008), "Incentives in decentralized random matching markets", Games and Economic Behavior.

* Muriel Niederle and Leeat Yariv (2009), "Decentralized Matching with Aligned Preferences", working paper.

* Archishman Chakraborty, Alessandro Citanna, and Michael Ostrovsky (2009), "Two-Sided Matching with Interdependent Values", working paper.

Fuhito Kojima (2009), "Robust Stability in Matching Markets", working paper.

Substitutes and complements

* Michael Ostrovsky (2008), "Stability in Supply Chain Networks", AER.

Ning Sun and Zaifu Yang (2006), "Equilibria and Indivisibilities: Gross Substitutes and Complements", Econometrica.

Ning Sun and Zaifu Yang (forthcoming), "A Double-Track Adjustment Process for Discrete Markets with Substitutes and Complements", Econometrica.

7. Dynamic Mechanism Design (6/3, in room S150)

* Atila Abdulkadiroglu and Simon Loertscher (2007), "Dynamic House Allocation", working paper.

* Utku Unver (2009), "Dynamic Kidney Exchange", REStud, forthcoming.

* Maher Said (2009), "Auctions with Dynamic Populations", working paper.

* Bergemann and Valimaki (2008), "The Dynamic Pivot Mechanism", working paper.

* Susan Athey and Ilya Segal (2007), "An Efficient Dynamic Mechanism," working paper.

Marco Battaglini (2005), "Long-Term Contracting with Markovian Consumers", AER.

Pavan, Segal and Toikka (2009), "Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure", working paper.