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Prediction markets elicit and aggregate beliefs by paying agents based on how close their predictions are to a verifiable future outcome. However, outcomes of many important questions are difficult to verify or unverifiable, in that the…
We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the…
We consider the classic principal-agent model of contract theory, in which a principal designs an outcome-dependent compensation scheme to incentivize an agent to take a costly and unobservable action. When all of the model…
We introduce a new model of combinatorial contracts in which a principal delegates the execution of a costly task to an agent. To complete the task, the agent can take any subset of a given set of unobservable actions, each of which has an…
We construct a model of expert prediction where predictions can influence the state of the world. Under this model, we show through theoretical and numerical results that proper scoring rules can incentivize experts to manipulate the world…
An arbitrage strategy allows a financial agent to make certain profit out of nothing, i.e., out of zero initial investment. This has to be disallowed on economic basis if the market is in equilibrium state, as opportunities for riskless…
Forecasts support decision making in a variety of applications. Statistical models can produce accurate forecasts given abundant training data, but when data is sparse, rapidly changing, or unavailable, statistical models may not be able to…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
Contract scheduling is a general technique that allows to design a system with interruptible capabilities, given an algorithm that is not necessarily interruptible. Previous work on this topic has largely assumed that the interruption is a…
Correctness is an emergent property of systems where exposing error is cheaper than committing it. In dynamic, low-trust environments, autonomous AI agents benefit from delegating work to sub-agents, yet correctness cannot be assured…
Collusion in market pricing is a concept associated with human actions to raise market prices through artificially limited supply. Recently, the idea of algorithmic collusion was put forward, where the human action in the pricing process is…
This paper studies theoretically and empirically a method of turning machine-learning algorithms into probabilistic predictors that automatically enjoys a property of validity (perfect calibration) and is computationally efficient. The…
Large parts of professional human communication proceed in a request-reply fashion, whereby requests contain specifics of the information desired while replies can deliver the required information. However, time limitations often force…
We consider the problem of eliciting expert assessments of an uncertain parameter. The context is risk control, where there are, in fact, three uncertain parameters to be estimates. Two of these are probabilities, requiring the that the…
We study buyer-optimal procurement mechanisms when quality is contractible. When some costs are borne by every participant of a procurement auction regardless of winning, the classic analysis should be amended. We show that an optimal…
In a real expert system, one may have unreliable, unconfident, conflicting estimates of the value for a particular parameter. It is important for decision making that the information present in this aggregate somehow find its way into use.…
Our aim is to design mechanisms that motivate all agents to reveal their predictions truthfully and promptly. For myopic agents, proper scoring rules induce truthfulness. However, as has been described in the literature, when agents take…
Selective rationalization has become a common mechanism to ensure that predictive models reveal how they use any available features. The selection may be soft or hard, and identifies a subset of input features relevant for prediction. The…
We consider a simple model of rational agents competing in a single product market described by simple linear demand curve. Contrary to accepted economic theory, the agents' production levels synchronise in the absence of conscious…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…