Secure second price auctions with a rational auctioneer

Abstract

We present novel security requirements for second price auctions and a simple, efficient and practical protocol that provably maintains these requirements. Novel requirements are needed because commonly used requirements, such as the indistinguishability-based secrecy requirement of encryption schemes presented by (Goldwasser and Micali, 1982), do not fit properly in the second price auctions context. Additionally, the presented protocol uses a trustworthy supervisor that checks if the auctioneer deviated from the protocol and fines him accordingly. By making sure the expected utility of the auctioneer when deviating from the protocol is lower than his expected utility when abiding by the protocol we ascertain that a rational auctioneer will abide by the protocol. This allows the supervisor to optimize by performing (computationally-intensive) inspections of the auctioneer with only low probability.