Selling an Item Among a Strategic Bidder and a Profiled Agent

Abstract

We consider the fundamental scenario where a single item is to be sold to one of two agents. Both agents draw their valuation for the item from the same probability distribution. However, only one of them submits a bid to the mechanism. The other agent is profiled, i.e., the mechanism receives a prediction for her valuation, which can be true or false. Our goal is to design mechanisms for selling the item that make as much revenue as possible in cases of a correct or incorrect prediction. As a benchmark for proving our revenue-approximation guarantees, we use the maximum expected revenue that can be obtained by a strategic and an honest bidder. We study two mechanisms. The first one yields optimal revenue when the prediction is guaranteed to be correct and a constant revenue approximation when the prediction is incorrect, assuming that the agent valuations are drawn from a monotone hazard rate (MHR) distribution. The second mechanism ignores the prediction for the second agent and simulates the revenue-optimal mechanism when no bid information for the bidders is available. We prove, again assuming that valuations are drawn from MHR distributions, that this mechanism achieves a constant revenue approximation guarantee compared to our revenue benchmark. The MHR assumption is necessary; we show that there are non-MHR but regular probability distributions for which no constant approximation of our revenue benchmark is possible.