UCL School of Management is delighted to welcome Ilan Lobel, NYU Stern to host a research seminar discussing: Auction Design using Value Prediction with Hallucinations.

Abstract

We investigate a Bayesian mechanism design problem where a seller seeks to maximise revenue by selling an indivisible good to one of n buyers, incorporating potentially unreliable predictions (signals) of buyers’ private values derived from a machine learning model. We propose a framework where these signals are sometimes reflective of buyers’ true valuations but other times are hallucinations, which are uncorrelated with the buyers’ true valuations. Our main contribution is a characterisation of the optimal auction under this framework. Our characterisation establishes a near-decomposition of how to treat types above and below the signal. For the one buyer case, the seller’s optimal strategy is to post one of three fairly intuitive prices depending on the signal, which we call the “ignore”, “follow” and “cap” actions.