{"id":392471,"date":"2017-06-21T00:00:07","date_gmt":"2017-06-21T07:00:07","guid":{"rendered":"https:\/\/www.microsoft.com\/en-us\/research\/?post_type=msr-research-item&#038;p=392471"},"modified":"2019-09-12T12:25:02","modified_gmt":"2019-09-12T19:25:02","slug":"double-clinching-auction-wagering","status":"publish","type":"msr-research-item","link":"https:\/\/www.microsoft.com\/en-us\/research\/publication\/double-clinching-auction-wagering\/","title":{"rendered":"The Double Clinching Auction for Wagering"},"content":{"rendered":"<p>We develop the first incentive compatible and near-Pareto-optimal wagering mechanism. Wagering mechanisms\u00a0can be used to elicit predictions from agents who reveal their beliefs by placing bets. Lambert et al. [20, 21]\u00a0introduced weighted score wagering mechanisms, a class of budget-balanced wagering mechanisms under\u00a0which agents with immutable beliefs truthfully report their predictions. However, we demonstrate that these\u00a0and other existing incentive compatible wagering mechanisms are not Pareto optimal: agents have significant\u00a0budget left over even when additional trade would be mutually beneficial. Motivated by this observation, we\u00a0design a new wagering mechanism, the <em>double clinching auction<\/em>, a two-sided version of the adaptive clinching<br \/>\nauction [9]. We show that no wagering mechanism can simultaneously satisfy weak budget balance, individual\u00a0rationality, weak incentive compatibility, and Pareto optimality. However, we prove that the double clinching\u00a0auction attains the first three and show in a series of simulations using real contest data that it comes much\u00a0closer to Pareto optimality than previously known incentive compatible wagering mechanisms, in some cases\u00a0almost matching the efficiency of the Pareto optimal (but not incentive compatible) parimutuel consensus mechanism.\u00a0When the goal of wagering is to crowdsource probabilities, Pareto optimality drives participation and\u00a0incentive compatibility drives accuracy, making the double clinching auction an attractive and practical choice.\u00a0Our mechanism may be of independent interest as the first two-sided version of the adaptive clinching auction.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>We develop the first incentive compatible and near-Pareto-optimal wagering mechanism. Wagering mechanisms\u00a0can be used to elicit predictions from agents who reveal their beliefs by placing bets. Lambert et al. [20, 21]\u00a0introduced weighted score wagering mechanisms, a class of budget-balanced wagering mechanisms under\u00a0which agents with immutable beliefs truthfully report their predictions. However, we demonstrate that these\u00a0and 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