Paper ID: 2405.16716

Adaptive Incentive Design with Learning Agents

Chinmay Maheshwari, Kshitij Kulkarni, Manxi Wu, Shankar Sastry

How can the system operator learn an incentive mechanism that achieves social optimality based on limited information about the agents' behavior, who are dynamically updating their strategies? To answer this question, we propose an \emph{adaptive} incentive mechanism. This mechanism updates the incentives of agents based on the feedback of each agent's externality, evaluated as the difference between the player's marginal cost and society's marginal cost at each time step. The proposed mechanism updates the incentives on a slower timescale compared to the agents' learning dynamics, resulting in a two-timescale coupled dynamical system. Notably, this mechanism is agnostic to the specific learning dynamics used by agents to update their strategies. We show that any fixed point of this adaptive incentive mechanism corresponds to the optimal incentive mechanism, ensuring that the Nash equilibrium coincides with the socially optimal strategy. Additionally, we provide sufficient conditions that guarantee the convergence of the adaptive incentive mechanism to a fixed point. Our results apply to both atomic and non-atomic games. To demonstrate the effectiveness of our proposed mechanism, we verify the convergence conditions in two practically relevant games: atomic networked quadratic aggregative games and non-atomic network routing games.

Submitted: May 26, 2024