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Mechanism Design on Trust Networks
"... Abstract. We introduce the concept of a trust network—a decentralized payment infrastructure in which payments are routed as IOUs between trusted entities. The trust network has directed links between pairs of agents, with capacities that are related to the credit an agent is willing to extend anoth ..."
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Abstract. We introduce the concept of a trust network—a decentralized payment infrastructure in which payments are routed as IOUs between trusted entities. The trust network has directed links between pairs of agents, with capacities that are related to the credit an agent is willing to extend another; payments may be routed between any two agents that are connected by a path in the network. The network structure introduces group budget constraints on the payments from a subset of agents to another on the trust network: this generalizes the notion of individually budget constrained bidders. We consider a multiunit auction of identical items among bidders with unit demand, when the auctioneer and bidders are all nodes on a trust network. We define a generalized notion of social welfare for such budgetconstrained bidders, and show that the winner determination problem under this notion of social welfare is NPhard; however the flow structure in a trust network can be exploited to approximate the solution with a factor of 1 − 1/e. We then present a pricing scheme that leads to an incentive compatible, individually rational mechanism with feasible payments that respect the trust network’s payment constraints and that maximizes the modified social welfare to within a factor 1 − 1/e. 1
TrustBets: Betting over an IOU Network
"... We consider the problem of operating a gambling market where players pay with IOUs instead of cash, and where in general not everyone trusts everyone else. Players declare their degree of trust in other players—for example, Alice trusts Bob for up to ten dollars, and Bob trusts Carol up to twenty do ..."
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We consider the problem of operating a gambling market where players pay with IOUs instead of cash, and where in general not everyone trusts everyone else. Players declare their degree of trust in other players—for example, Alice trusts Bob for up to ten dollars, and Bob trusts Carol up to twenty dollars. The system determines what bets are acceptable according to the trust network. For example, Carol may be able to place a bet where she is at risk of losing ten dollars to Alice, even if Alice doesn’t trust Carol directly, because the IOU can be routed through Bob. We show that if agents can bet on n events with binary outcomes, the problem of determining whether a collection of bets is acceptable is NPhard. In the special case when the trust network is a tree, the problem can be solved in polynomial time using a maximum flow algorithm.