Combinatorial auctions with endowment effect (Q2100637)

The paper is devoted to the combinatorial auctions with bidders that exhibit an endowment effect. The authors consider bidders in combinatorial auctions that exhibit an endowment effect. Our main contribution is utilizing the cognitive biases of the bidders to extend the valuations classes for which a Walrasian equilibrium exists: if bidders exhibit a mild endowment effect then a Walrasian equilibrium is guaranteed to exist even when the valuations are submodular. It is shown (see Theorem 4.2.): Let \(\nu_1,\ldots , \nu_n\) be submodular valuations. Let \(O = (O_1,\ldots , O_n)\) be a local optimum. Then \(O\) is supported by any \(\alpha \ge 2\). As an immediate corollary, the endowment gap of every instance with submodular valuations is at most 2. Appendix A. discusses the complexity of finding a local optimum. Some lower bounds on the endowment gap are given in Appendix B.