agent based models and common value auctions
DESCRIPTION
Agent Based Models and Common Value Auctions. B. Wade Brorsen. Agent based models (ABM) simulate the actions and interactions of autonomous agents to determine effects on the system as a whole. Agent-Based Model: Bottom-up Method Carry out the experiments with programmed agents - PowerPoint PPT PresentationTRANSCRIPT
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Agent Based Models and Common Value Auctions
B. Wade Brorsen
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Agent based models (ABM) simulate the actions and interactions of autonomous agents to determine effects on the system as a whole.
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3
• Agent-Based Model: Bottom-up Method– Carry out the experiments with programmed agents – Interactive agents with simple rules
Initial condition
Observed Market Equilibrium
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Applications of ABM
• Biology• Land Use• Urban Planning• Oligopoly• Auctions
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Contrast with Traditional TheoryFully Rational
a. Maximize profitb. Maximize expected utility
Boundedly RationalDo what worked last time
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Game Theory
Small number of playersIndustrial organizationInternational tradeNash equilibrium
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Oligopoly Models
CournotBertrandStackelberg
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Auctions
Private valueCommon valueAffiliated value
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Meyers (1988)
Matagorda County rice auctionsBids increased as # buyers increasedWinner’s curseBid shading
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Relevant Tools to Study Auctions
TheoreticalHuman experimentsAgent-based models
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Agent Based Models
Computerized agentsFollow specific rulesSimulation or optimization?
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Stochastic Global Optimization
Evolutionary AlgorithmsGenetic algorithmsParticle swarm
Random Restarts
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13
Market 1
particle 1 particle K Agent 1
Agent 2
Strategy 1
Local Best 1 Local Best K
Market K
Local Best 1 Local Best K
Global Best
Global Best
Profit
particle 1 particle K
Select New
strategy
Select New
strategyStrategy K
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Convergence to Equilibrium
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Software
• Many canned packages - Mostly land use• We use Java• Can be slow
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Revisiting Mandatory Price Reporting Act
of 1999 Using an Agent-Based Model
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Objective
• Develop an agent-based common-value auction to determine expected effect of Livestock Mandatory Price Reporting Act on packer market power
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MPR Literature
• Previous theoretical work disagrees
• Recent econometric work shows beef packers’ market power increased after MPR
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Theoretical Framework
• Previous theoretical work follows Cournot theory
• Auction model is closer to how cattle are actually purchased
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Auction Structure
• First-price common-value auction with a reserve price
• Common value for the packers is 0.5
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Post MPR Results
Category Full Noise
Seller Reduced
Noise
Buyer Reduced
Noise
Average winning bid price 0.02 0.11 0.06
Reserve price -0.31 -0.08 -0.43
Buyer 1 expected revenue 0.17 0.10 0.20
Buyer 2 expected revenue 0.16 0.10 0.18
Seller expected revenue 0.01 0.06 0.06
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Application to Cattle Sales
• Reducing either the seller’s or buyers’ uncertainty through USDA-AMS reports created by MPR benefits the seller