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Fredrik Ygge

On the Gains and Losses of Speculation in Equilibrium Markets

By Tuomas Sandholm and Fredrik Ygge. To appear in Proceedings of the Fifteenth International Conference on Artificial Intelligence, IJCAI '97.

The paper is a rather technical paper written for people with background in computer science and computational markets.

Abstract

In computational markets utilizing algorithms that establish a market equilibrium (general equilibrium), competitive behavior is usually assumed: each agent makes its demand (supply) decisions so as to maximize its utility (profit) assuming that it has no impact on market prices. However, there is a potential gain from strategic behavior (via speculating about others) because an agent does affect the market prices, which affect the supply/demand decisions of others, which again affect the market prices that the agent faces.

This paper presents a method for computing the maximal advantage of speculative behavior in equilibrium markets. Our analysis is valid for a wide variety of known market protocols. We also construct demand revelation strategies that guarantee that an agent can drive the market to an equilibrium where the agent's maximal advantage from speculation materializes.

Our study of a particular market shows that as the number of agents increases, gains from speculation decrease - often turning negligible already at moderate numbers of agents. The study also shows that under uncertainty regarding others, competitive acting is often close to optimal, while speculation can make the agent significantly worse off - even if the agent's beliefs are just slightly biased. Finally, protocol dependent game theoretic issues related to multiple agents counterspeculating are discussed.

Note: This paper is under copyright of IJCAI.

The entire paper in zipped PostScript format.


Last edited May 5th 1997 by fredrik.ygge@enersearch.se.