Differentiable Economics: Strategic Behavior, Mechanisms, and Machine Learning

Economists have developed different types of models describing the interaction of agents in markets. Early models in general equilibrium theory describe agents taking prices as given and do not consider the incentives of agents to manipulate prices strategically. With appropriate convexity assumptions on the preferences, such models can be cast as convex optimization problems for which efficient algorithms are known to find a competitive equilibrium. Price-taking behavior might be a reasonable approximation of agent behavior in large markets, but it does not adequately capture the incentives and strategies that agents have in smaller markets or in other strategic settings. Modern models in economics, such as those used for modeling auctions, oligopoly competition, or contests, are based on game theory, with the Nash equilibrium as the central solution concept.