How Artificial Intelligence and Machine Learning Can Impact Market Design
In complex environments, it can be difficult to understand the underlying characteristics of transactions, and it is challenging to learn enough about them so as to design the best institutions to efficiently generate gains from trade. In recent years, artificial intelligence has emerged as an important tool that allows market designers to uncover important market fundamentals, and to better predict fluctuations that can cause friction in markets. Examples include retailers and marketplaces who mine vast amounts of data to identify patterns that help them increase the efficiency of their markets, and auction designers who train learning models to simplify auctions with complex sets of constraints. With better prediction tools, companies can better anticipate consumer demand and producer supply as well as identify risks to the integrity of transactions. This chapter offers some recent developments of how artificial intelligence helps market designers improve the operations of markets, and outlines directions in which it will continue to shape and influence market design.
Paul R. Milgrom
Paul Milgrom is co-founder and chairman of Auctionomics, which was paid to supply software and design services to the US government in connection with the incentive auction described in this paper.