Abstract

One of the major achievements of mechanism design theory is the family of truthful (incentive compatible) mechanisms often called VCG (named after Vickrey, Clarke and Groves). When applying VCG mechanisms to complex mechanism design problems such as combinatorial auctions a problem emerges: even finding optimal outcomes is computationally intractable. A striking observation is that if the optimal outcome is replaced by the results of computationally tractable approximation algorithms or heuristics then the resulting mechanism (termed VCG-based) is no longer necessarily truthful! The first part of this paper considers this problem in depth and shows that it is almost universal. Specifically, we prove that essentially all reasonable approximations or heuristics for combinatorial auctions as well as a wide class of cost minimization problems yield non-truthful VCG-based mechanisms. The second part of this paper proposes a method for handling this non-truthfulness. We introduce a...

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