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Economics of Internet Descriptions

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Please see the attached file.

This mechanism is equivalent to a "second-price auction", the only difference (which turns out to be irrelevant) is that we're dealing with bids of negative values, and thus the "winner" of the auction (the one that finally stays late) will actually receive money - or, in this case, will receive yootles.

According to what is stated in the page, the "winner" is chosen such that total utility is maximized (or equivalently, such that total disutility is minimized). Therefore, in this case, the person that with the highest bid will stay late. For example, if individual 1 bids -4, individual 2 bids -6, individual 3 bids -5 and individual 4 bids -8, then the winner (the one that stays late) would be subject 1.

The mechanism establishes that if someone's bid is pivotal, in the sense that the outcome of the bid would have been different if he hadn't participated, then that someone must pay the other participants a sum (in yootles) equal to the difference between the utility they are getting now and the utility they would have got if the pivotal person had not participated.

In the above example, the only pivotal participant is individual 1. If he hadn't participated, then the outcome would have been different (individual 3 would have won). All other participants are not pivotal, because if they had not participated, individual 1 would have won anyway. Now, individuals 2 and 4 would have gotten the same utility if individual 1 had not ...

Solution Summary

The economics of internet descriptions are determined.