Expectations run high for software that makes real-world decisions, particularly when money hangs in the balance. This third episode of the
Drill Bits
column shows how well-designed software can effectively
create wealth
by optimizing gains from trade in combinatorial auctions. We'll unveil a deep connection between auctions and a classic textbook problem, we'll see that clearing an auction resembles a high-stakes mutant Tetris, we'll learn to stop worrying and love an NP-hard problem that's far from intractable in practice, and we'll contrast the deliberative business of combinatorial auctions with the near-real-time hustle of high-frequency trading. The example software that accompanies this installment of
Drill Bits
implements two algorithms that clear combinatorial auctions.
Offline Algorithms in Low-Frequency Trading