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Internet Economics כלכלת האינטרנט

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Internet Economicsכלכלת האינטרנט

- Dr. LiadBlumrosenד"ר ליעד בלומרוזן
- Office: 5205
- Email: [email protected]
- Office hours: Mondays, 14:30-15:30You are encouraged to come!(Please drop me a line if you plan to come)
- My research interests: computational economics, Electronic commerce, Auction theory, game theory.

- Semester A: I will teach the foundations.
- Should make the literature accessible.
- You get some ideas for the seminar paper…

- Topics:
- Introduction (this week)
- Essentials from game theory (1 week)
- Auction theory and market design (~6 weeks)
- Social networks (~3 weeks)
- Recommendation systems (1-2 weeks)
- Information markets(1 week)
- More….

- Semester B: student presentations.
- and guidance for writing the seminar paper.

- Requirements: write a seminar paper
- Choose a topic: by the end of Semester A(submit a proposal, get approval.)
- Present the related paper in class (~30 minutes).
- During semester B

- Write the seminar paper
- up to 10 pages, font 12, 1.5 lines spacing.
- Submission time is June 1st !

- Work in pairs (recommended, not mandatory).
- One problem set towards the end of Semester A
- Can only improve final grade (“Magen”).

- 30% presentation
- 70% seminar paper
- 10% problem set (“magen”)

- Everything related to Internet Economics.
- Recommended:
- choose a research paper, read it, understand it, and make it a starting point of the seminar paper.

- List of suggested papers will appear on the course web page.
- You are free to choose any other paper or topic (but I need to approve it).

- Class presentation: present the paper
- Background, main result, added value to literature.
- Present to class, not to me.
- In Hebrew.
- Slides: In English (preferred), or Hebrew.

- Seminar paper: add something of your own
- Main goal:Raise a new research direction, phrase exact questions and challenges, one (small) step toward to solution.
- Applying the result in other Internet environments.
- criticism of the work.
- Etc.

- There will be a course web page.
- All materials (slides etc.) will be put online.
- Suggested articles, book chapters, and reading suggestions will also be posted.

למה השקפים באנגלית?

End of administrative part.

Questions?

Now, a short preview for the course.

Note: theoretical course, based and demonstrated by real world internet application.

- Last two decades: information revolution.
- Communication became:quick, large bandwidth, available anytime and everywhere.
- Changes our everyday life.
- Also change commerce.
- Many large internet systems.
- Can we design them without economic understanding?
- Can we understand them without economic tools?

Some examples in the next slides.

- Foundations of electronic commerce
- Matching systems
- Residents to hospitals, Kids to schools, Kidney Exchange, Match.com

- Social networks
- Recommendation systems
- Information markets

The Internet was, and still is, built by humans. Its main applications too.Economists as engineers.

In most of the course, we will try to understand the logic behind the design of Internet systems

- and analyze how they are expected to work…

- Auctions.
Let’s start with a little auction….

- כל תלמיד צריך לכתוב לי שתי הצעות מחיר, אחת לכל שיטת מכירה.
- ההצעות יכולות, אך לא חייבות, להיות שונות זו מזו.
- אפשר להציע 0 אגורות אם לא מעוניינים.

- לאחר קבלת הצעות המחיר, אני אטיל מטבע ואבחר באיזו שיטה אני בוחר.

שיטה שניה:"שלם את הבא אחריך"ההצעה הגבוהה ביותר זוכה, והתשלום הוא ההצעה השניה הכי גבוהה.

- שיטה ראשונה:"שלם את הצעתך"ההצעה הגבוהה ביותר זוכה, והתשלום הוא גובה ההצעה.

אם המכירה תהיה "שלם את הצעתך", הצעתי היא 4.31 שקלים

אם המכירה תהיה "שלם את הבא אחריך" הצעתי היא 5.11 שלקים

לדוגמא:

- Basic model:
- 1 item for sale
- n bidders
- Each bidder submits bid bifor the items.

Bid = 20

Bid = 8

Bid = 12

Bid = 15

First-price auctions:

- The bidder with highest bid wins
- Pays his own bid

Second-price auctions:

- The bidder with highest bid wins
- Pays the second highest bid

- Have you ever seen a second-price auction in real life?
- Yes! eBay, olsale.co.il
- Ascending-price auctions are equivalent to second price auctions.
- Really equivalent?

- If you are a profit maximizing seller, what would you choose:first –price or second-price auctions?

Revenue in first price auction

Revenue in second prize auction

- Answer:
- How can it be?
Intuition: in first price auction, people bid less then they are actually willing to pay.

- “The Revenue Equivalence Theorem”(Roger Myerson, ‘81, Nobel prize winner).

- Auctions
- Sponsored search

Real (“organic”) search result

Ads: “sponsored search”

- An online auction is run for every individual search.
- Advertising is effective.
- Targeted.
- Users in search mode.

- (mostly) Pay-per-click auctions.
- First price? Second price? In about 5 classes…

- Google’s revenue from sponsored search: Billions of Dollars each quarter.
- Every little detail matters.
- Advertisers are “selfish” agents: will manipulate the auction if possible.
- Not a regular software development:hard to experiment.
- Big internet companies (Google, eBay, Microsoft, Yahoo, etc.) are hiring well-known economists to design their markets.
- Use auction theory!

- Auctions
- Sponsored search
- Social Networks

US high school dating network: who have you been in romantic touch with, in the past 18 months

High school friendship network. Kids from different races have different colors.

A spread of an epidemic disease tuberculosis.

- In the previous slides: social network that were studied by sociologists for years.
- What about research on facebook(300 million active users), mySpace, gmail, MS messanger, flickr, and many more….
- Researchers from multiple disciplines:Economics, sociology, biology, computer science, physics…

Representation: graph (network).

- Edge between nodes: friendship, know each other, …
- Can be directed or non directed.
- Distance between nodes: shortest path between them.

Friendship (or edge in the graph):A played with B in the same movie

“Kevin Bacon number” – distance (shortest path) to Kevin Bacon. The Oracle of Bacon.

- Humphrey Bogart Bacon number 2.
- HaimTopolhas Bacon number 2.
- Maximal known – 8 (wikipedia)

Paul Erdös – one of the greatest mathematicians of our times.

Friendship/edge :Awrote a scientific paper with B.

- My Erdös number - 3 (I wrote a paper with someone that wrote a paper with someone that wrote a paper with Erdös).
- Robert J. Aumann’s(3), Larry Page (3), Bill Gates (4)

Bacon number, Erdösnumber – examples for “small world phenomena”/”six degrees of separation”.

- How do social networks form?
- What is their structure?
- How information is spread through the network?
- Positive vs. negative externalities.

- Auctions
- Sponsored search
- Social Networks
- Recommendation (reputation) systems

- Possible manipulations:
- Whitewashing (users with poor reputation starting afresh)
- Lack of effort/honesty in providing feedback.
- Sybil attacks (create feedback from fake identities).

- Research directions:
- Economic modeling of the problem
- Design manipulation-proof mechanisms.

- Auctions
- Sponsored search
- Social Networks
- Recommendation (reputation) systems
- Information markets

What is the probability that Amos Oz will win the Nobel Prize in literature next year?

How can we estimate it? Use the “Wisdom of the Crowds”.

Method:

- We sell a bond that will pay $100 next year if Oz wins.
- If people price it for $23: probability is 23%.

intrade

Many design issues…

- Aggregation of information.
- Arbitrage prevention.
- Budget balance.
- Complex items (think about currency exchange rates)

- Most of the material in the course is “theoretical”.
- However, each class will be motivated by real world system and analyze the rational behind its design.
- Seminar papers: most will be based on applied theory papers (math level from trivial to hard, you choose). Empirical relevant papers are also possible.

Good luck!