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CORR
2010
Springer

An Optimal Dynamic Mechanism for Multi-Armed Bandit Processes

8 years 11 months ago
An Optimal Dynamic Mechanism for Multi-Armed Bandit Processes
We consider the problem of revenue-optimal dynamic mechanism design in settings where agents' types evolve over time as a function of their (both public and private) experience with items that are auctioned repeatedly over an infinite horizon. A central question here is understanding what natural restrictions on the environment permit the design of optimal mechanisms (note that even in the simpler static setting, optimal mechanisms are characterized only under certain restrictions). We provide a structural characterization of a natural "separable" multiarmed bandit environment (where the evolution and incentive structure of the a-priori type is decoupled from the subsequent experience in a precise sense) where dynamic optimal mechanism design is possible. Here, we present the Virtual Index Mechanism, an optimal dynamic mechanism, which maximizes the (long term) virtual surplus using the classical Gittins algorithm. The mechanism optimally balances exploration and exploi...
Sham M. Kakade, Ilan Lobel, Hamid Nazerzadeh
Added 25 Dec 2010
Updated 25 Dec 2010
Type Journal
Year 2010
Where CORR
Authors Sham M. Kakade, Ilan Lobel, Hamid Nazerzadeh
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