On the Reality of Signaling in Auctions

Abstract

Over the last two decades, auctions have become an integral part of e-commerce and a promising field for applying artificial intelligence technologies. The use of signals has been studied extensively in the existing auction literature. Specifically, it has been shown that when an external strategic entity (such as an information broker) is present, it can be beneficial to use signaling as a preliminary step before offering to sell information. However, these results apply only in cases where all auction participants are completely rational agents. However, in many real-life scenarios some of the participants are humans, and hence are easily affected by external factors, i.e., their rationality is bounded. In this paper, we offer a thorough investigation of a case in which the prospective information buyer is a human auctioneer. Using a set of MTurk-based experiments with people, we tested 10,000 independent auctions with diverse characteristics, and were able to identify a varied set of practical insights regarding human behavior. Real-life strategic information brokers could potentially use these insights to achieve a better understanding of how humans operate, paving the way for optimizing the benefit obtainable from the information they own.