Error-Aware Reverse Auction Mechanism for Large Language Model Routing

• URL: http://arxiv.org/abs/2608.12719v1
• Date: Thu, 13 Aug 2026 02:04:26 GMT
• Title: Error-Aware Reverse Auction Mechanism for Large Language Model Routing
• Abstract summary: We propose a market-based routing paradigm that shifts ex-ante prediction to LLM providers via a reverse auction.<n>We show that EA-RAM is robust to the Dual Error and achieves a better cost--performance frontier than centralized baselines.
• Score: 16.267799788978603
• License: http://creativecommons.org/licenses/by/4.0/
• Abstract: Routing each query to a cost-effective large language model (LLM) is critical for balancing quality and cost, yet most routers rely on a centralized task center to predict model performance, creating an information-risk mismatch and a scalability bottleneck as the model pool grows. We propose a market-based routing paradigm that shifts ex-ante prediction to LLM providers via a reverse auction, where providers bid with self-predicted success probabilities and execution costs. To account for inherently noisy provider predictions and center evaluations, we introduce the \textit{\textbf{E}rror-\textbf{A}ware \textbf{R}everse \textbf{A}uction \textbf{M}echanism} (EA-RAM), which explicitly models this inherent Dual Error. We prove that EA-RAM is Bayesian incentive compatible and individually rational under the Dual Error, establish sufficient conditions for center rationality, and derive an explicit welfare-loss bound. We further identify robustness effects: opposite-signed errors can cancel, vanishing-tail link functions (e.g., logistic) stabilize clear-cut cases via saturation, and extra noise smooths belief maps, reducing the gains from marginal manipulation. Experiments on simulations and real-world benchmarks show that EA-RAM is robust to the Dual Error and achieves a better cost--performance Pareto frontier than centralized baselines, with additional gains when providers contribute local information, validating its practical effectiveness.

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