Mechanism design

Virtual valuation

In auction theory, particularly Bayesian-optimal mechanism design, a virtual valuation of an agent is a function that measures the surplus that can be extracted from that agent. A typical application is a seller who wants to sell an item to a potential buyer and wants to decide on the optimal price. The optimal price depends on the valuation of the buyer to the item, . The seller does not know exactly, but he assumes that is a random variable, with some cumulative distribution function and probability distribution function . The virtual valuation of the agent is defined as: (Wikipedia).

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