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## Posts Tagged ‘eCommerce’

Facebook has announced a pretty nice graduate student fellowship program.  The first three reserach areas they mention are:

• Internet Economics: auction theory and algorithmic game theory relevant to online advertising auctions.
• Cloud Computing: storage, databases, and optimization for computing in a massively distributed environment.
• Social Computing: models, algorithms and systems around social networks, social media, social search and collaborative environments.

(Hat tip to TechCrunch.)

Google has its own graduate Fellowship program (Nicolas Lambert got the 2009 Fellowship in “Market Algorithms”.)

Google gives its employees \$1/day of free adwords advertising.  Beyond an employee perk, this gives Google’s employees the experience of being an Internet advertiser, i.e. experiencing the point of view of Google’s paying customers.  I have been using my \$1/day account to advertise the divorce-consulting business of my sister in law (In Hebrew) and did indeed find this experience to be quite illuminating.

The first thing I learned is that the ad auction itself is just a small part of the whole thing.  Choosing the right text for the ads (all ten words of it), choosing the right keywords to target, etc, is much more prominent than setting the right bids.  “Tiny” issues come up everywhere, e.g. when I needed to choose keywords to target, it turns out that there are four ways to write divorce in Hebrew: גירושים, גירושין, גרושין, גרושים.  I’m not really sure whether these are all “kosher” spellings, but they are all searched for an do need to be taken into account.  Even more, the whole advertising campaign is peripheral, in principle, to the business itself, and frankly the auction logic is not the first concern of the advertiser.  This is obvious, of course, but is easy to forget for one whose work focuses on the auction logic.

Now for the auction itself: all together I spent several hours setting up the campaign, making up the ads, choosing keywords, looking at reports, and trying a bit of optimization.  The adwords user interface was very easy and convenient to start with, but it didn’t take long until I was attempting things that confused me (e.g. splitting my single campaign into two different ones), at which point I gave up, and stayed with what I achieved, which is quite fine actually.  I was especially impressed with Google’s automatic suggestions of keywords which were cleverer than what I came up with (I know that not really, just some learning algorithm, but they were eerily good.)

The set of reports about the performance of the campaign that adwords makes available  is quite impressive, and they are really nicely and simply done, but somehow I still don’t really know how how to optimize my campaign as to get the most and the best customers to the site.  I’m sure that more time on my part, as well as a more data-centric handling of my sister-in-law’s business would improve things, but the difficulty of getting and handling the right data is another lesson that I got from this exercise (again, I knew this theoretically, but now I feel it too).

## Experiments on Mechanical Turk

Crowd sourcing has just been given a recent visibility boost with DARPA’s Red Balloon contest that was won by the MIT team.  At the same time, Amazon’s well-established (since 2005!) platform for crowd sourcing, the Mechanical Turk, is gaining attention as a platform for conducting behavioral experiments, especially in behavioral economics and game-theory.

Named after the 18th century human-powered chess-playing “machine” called “the Turk”, this platform allows “requesters” to submit “Human Intelligence Tasks” (HITs) to a multitude of human “workers” who solve them for money.  A sample of recent typical tasks include tagging pictures (for 3 cents), writing (and posting on the web) a short essay with a link (for 20 cents), or correcting spellings (for 2 cents, in Japanese).  This allows brief and cheap employment of hundreds and thousands of people to work on simple Internet-doable low-level knowledge tasks.  You may demand various “qualification exams” from these workers, and design such quals of your own.  Obviously workers are in it for the money, but apparently not just that.

Recently, the Mechanical Turk is being used to conduct behavioral experiments.  Gabriele Paolacci is methodologically repeating experiments of Kahneman and Tversky and reporting on them in his blog. Panos Ipeirotis reports on his blog studies of some aspects of the Mechanical Turk as well as results of various behavioral game-theory experiments on it.  I’ve seen others report on such experiments too.  Markus Jacobsson from PARC gives general tips for conducting such human experiments using the Mechanical Turk.

Turk-based behavioral experimentation has the immense appeal of being cheap, fast, and easy to administer.  There are obviously pitfalls such as getting a good grasp on the population, but so does any experimental setup.   Such a platform may be especially appropriate for Internet-related behavioral experiments such as figuring out bidding behavior in online auctions, or how to best frame a commercial situation on a web-page.  Could this be a tool for the yet not-quite-existent experimental AGT?

The DoubleClick Ad Exchange is a real-time marketplace to buy and sell display advertising space. By establishing an open marketplace where prices are set in a real-time auction, the Ad Exchange enables display ads and ad space to be allocated much more efficiently and easily across the web. It’s just like a stock exchange, which enables stocks to be traded in an open way.

There are some existing competitors, but Google’s entry may be game-changing.  Lots of research problems beg themselves.

## New Paper: A computational view of Market Efficiency

An intriguing new paper, A computational view of Market Efficiency by Jasmina Hasanhodzic, Andrew W. Lo, and Emanuele Viola has just been uploaded to the arXiv.

Abstract

We propose to study market efficiency from a computational viewpoint. Borrowing from theoretical computer science, we define a market to be efficient with respect to resources $S$ (e.g., time, memory) if no strategy using resources $S$ can make a profit. As a first step, we consider memory-$m$ strategies whose action at time $t$ depends only on the $m$ previous observations at times $t-m,...,t-1$. We introduce and study a simple model of market evolution, where strategies impact the market by their decision to buy or sell. We show that the effect of optimal strategies using memory $m$ can lead to “market conditions” that were not present initially, such as (1) market bubbles and (2) the possibility for a strategy using memory $m' > m$ to make a bigger profit than was initially possible. We suggest ours as a framework to rationalize the technological arms race of quantitative trading firms.

## Preference elicitation or manipulation?

A “textbook system” based on social choice theory would have a centralized mechanism interacting with multiple software agents, each of them representing  a user.  The centralized mechanism would be designed to optimize some global goal (such as revenue or social welfare) and each software agent would elicit the preferences of its user and then optimize according to user preferences.

Among other irritating findings, behavioral economics also casts doubts on this pretty picture, questioning the very notion that users have preferences; that is preferences that are independent of the elicitation method.  In the world of computation, we have a common example of this “framing” difficulty: the default.  Users rarely change it, but we can’t say that they actually prefer the default to the other alternative since if we change the default then they stick with the new one.  Judicious choice of defaults can obviously be used for the purposes of the centralized mechanism (default browser = Internet explorer); but what should we do if we really just want to make the user happy?  What does this even mean?

The following gripping talk by Dan Ariely demonstrates such issues.