Tim O'Reilly on market design in the age of A.I.

 Tim O'Reilly, one of the OG commentators/facilitators/cheerleaders of the internet revolution, has some thoughts on the infrastructure  of the various marketplaces for AI.

The Missing Mechanisms of the Agentic Economy: From disclosures to protocols to markets By Tim O’Reilly
 

"For the past two years, I’ve been working with economist Ilan Strauss at the AI Disclosures Project. We started out by asking what regulators would need to know to ensure the safety of AI products that touch hundreds of millions of people. We are now exploring the missing mechanisms that are needed to enable the agentic economy.

"This essay traces our path from disclosures through protocols to markets and mechanism design. Rather than simply stating our conclusions, I’m sharing our thought process and some of the conversations and historical examples that have shaped it. 

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"Economists use the term “mechanism design” to describe the engineering of rules and incentive structures that lead self-interested actors to produce outcomes that are good for everyone. It’s sometimes called “reverse game theory.” Rather than analyzing the equilibria that emerge from a given set of rules, you start with the outcome you want and work backward to design the rules that will get you there.

"Mechanism design theory got its start in the 1960s when Leonid Hurwicz took up the problem of how a planner can make good decisions when the information needed to make them is scattered among many different people, each of whom has their own interests. His key insight was that people won’t reliably reveal what they know unless it’s in their interest to do so. So how do you design a system that aligns their incentives?

"The field that Hurwicz founded and that Eric Maskin and Roger Myerson developed through the 1970s and 80s earned all three the Nobel Prize in Economics in 2007.

"I first encountered the field when Jonathan Hall, at the time the Chief Economist at Uber, waved Al Roth’s book Who Gets What — and Why at me and said “This is my Bible.” In it, Roth describes his own work on mechanism design, which won him the 2012 Nobel Prize in Economics along with Lloyd Shapley. Roth applied mechanism design to kidney matching markets, markets for college admissions, for law clerks and judges, and for hospitals and medical residents. When I first talked to Jonathan and then Al Roth, my layman’s takeaway about mechanism design was that it was simply the application of economic theory to design better markets.

"And I’ve since come to think even more broadly about what mechanism design might mean in a technology context. In my broader framing, packet switching was a breakthrough in mechanism design. So for that matter was TCP/IP, the World Wide Web, and the protocol-centric architecture of Unix/Linux, which enabled open source and the distributed, cooperative software development environment we take for granted today. PageRank and the rest of Google’s organic search system also seems to me to be a kind of mechanism design. So do Pay Per Click advertising and the Google ad auction. All of them are ways of aligning incentives such that self-interested actors produce outcomes that are good for others as well. "