agent based models and common value auctions b. wade brorsen
TRANSCRIPT
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.
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• Agent-Based Model: Bottom-up Method– Carry out the experiments with programmed agents – Interactive agents with simple rules
Initial condition
Observed Market Equilibrium
Applications of ABM
• Biology• Land Use• Urban Planning• Oligopoly• Auctions
Contrast with Traditional Theory
Fully Rationala. Maximize profitb. Maximize expected utility
Boundedly RationalDo what worked last time
Game Theory
Small number of playersIndustrial organizationInternational tradeNash equilibrium
Oligopoly Models
CournotBertrandStackelberg
Auctions
Private valueCommon valueAffiliated value
Meyers (1988)
Matagorda County rice auctionsBids increased as # buyers increasedWinner’s curseBid shading
Relevant Tools to Study Auctions
TheoreticalHuman experimentsAgent-based models
Agent Based Models
Computerized agentsFollow specific rulesSimulation or optimization?
Stochastic Global Optimization
Evolutionary AlgorithmsGenetic algorithmsParticle swarm
Random Restarts
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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
Convergence to Equilibrium
Software
• Many canned packages - Mostly land use• We use Java• Can be slow
Revisiting Mandatory Price Reporting Act
of 1999 Using an Agent-Based Model
Objective
• Develop an agent-based common-value auction to determine expected effect of Livestock Mandatory Price Reporting Act on packer market power
MPR Literature
• Previous theoretical work disagrees
• Recent econometric work shows beef packers’ market power increased after MPR
Theoretical Framework
• Previous theoretical work follows Cournot theory
• Auction model is closer to how cattle are actually purchased
Auction Structure
• First-price common-value auction with a reserve price
• Common value for the packers is 0.5
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
Application to Cattle Sales
• Reducing either the seller’s or buyers’ uncertainty through USDA-AMS reports created by MPR benefits the seller