Doi: 10.1145/1435417.1435435
Economic and social sciences will drive Internet protocols and services into the future.
four areas of computation in which incentives play a crucial role: resource allocation, knowledge integration, peer production and interaction, and security and privacy.
Allocating scarce resources—from bread to bytes—is a fundamental process that permeates economics and, indeed, society. Participants declare their perceived value for the resource and the
challenges in market computes the best (for example, value-maximizing) allocation and the prices that participants should pay.
One decentralized prescription for
E-commerce resource allocation is an auction. Classical auctions emphasize simple rules for setting allocations and prices, which can be determined manually. Many of the largest marketplaces in the world, including financial exchanges, are at their core based on these centuries-old procedures. In one week of March 2008, the U.S. treasury sold, largely through manual means, more than $22 billion in three-month treasury bills.
Modern computer systems can support much richer and more flexible mechanisms. Governments use auctions to allocate property rights such as wireless spectrum (with worldwide proceeds exceeding $100 billion by the end of 2001). Combinatorial auctions allow bidders to express values for bundles of goods—for example, in assigning a higher value to two adjacent properties than the sum of the values assigned to each. Generalized combinatorial
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auctions with rich and natural forms of expressiveness—volume discounts, side constraints, and bundling requirements, among others—are used to determine billions of dollars of spending within the supply chain, even though the problem is NP-hard. For example, they are used to source truckload-trans-portation logistics for Procter & Gamble, Walmart, and Target. 30
Advertising is a business based on allocating attention, one of the scarcest and most valuable of resources. Media companies capture attention by providing information or entertainment and
coMpaNIeS aNd INdIvIduaLS
are using computer
networks to conduct increasing amounts of their daily business. Web search engines auctioned some $10 billion of ad space in 2007, accounting for almost half of all online advertising revenue. sales at Amazon. com were $4.13 billion in the first quarter of 2008, including a fast-growing revenue stream from selling Web services to other e-commerce companies. At eBay, sales reached $15.7 billion in the second quarter, with 84. 5 million active users.
This explosion of large-scale e-commerce poses new computational challenges that stem from the need to understand incentives. Because individuals and organizations that own and operate networked computers and systems are autonomous, they will generally act to maximize their own self-interest—a notion that is absent from traditional algorithm design. In this article, we provide an overview of
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