Counterbalancing Learning and Strategic Incentives in Allocation Markets

Jamie Juhee Kang, Faidra Monachou, Moran Koren, Itai Ashlagi

Keywords: learning, strategic incentives, mechanism design, voting, allocation, markets, healthcare, social learning, herding

TL;DR: We study an allocation problem in the presence of learning and strategic incentives and propose a novel batch-by-batch, dynamic voting mechanism that improves correctness compared to the sequential offering mechanism commonly used in practice.

Abstract: Motivated by the high discard rate of donated organs in the United States, we study an allocation problem in the presence of learning and strategic incentives. We consider a setting where a benevolent social planner decides whether and how to allocate a single indivisible object to a queue of strategic agents. The object has a common true quality, good or bad, which is ex-ante unknown to everyone. Each agent holds an informative, yet noisy, private signal about the quality. To make a correct allocation decision the planner attempts to learn the object quality by truthfully eliciting agents' signals. Under the commonly applied sequential offering mechanism, we show that learning is hampered by the presence of strategic incentives as herding may emerge. This can result in incorrect allocation and welfare loss. To overcome these issues, we propose a novel class of incentive-compatible mechanisms. Our mechanism involves a batch-by-batch, dynamic voting process using a majority rule. We prove that the proposed voting mechanisms improve the probability of correct allocation whenever agents are sufficiently well informed. Particularly, we show that such an improvement can be achieved via a simple greedy algorithm. We quantify the improvement using simulations.

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