Tech Reports

ULCS-02-004

Co-evolution of Auction Mechanisms and Strategies: Towards a novel approach to microeconomic design

Steve Phelps, Peter McBurney, Simon Parsons and Elizabeth Sklar

Abstract

Mechanism design is the economic theory of the design of effective resource allocation mechanisms, such as auctions. Traditionally, economists have approached design problems by studying the analytic properties of different mechanisms. An alternative approach is to view the auction mechanism as the outcome of some evolutionary process involving the participants, the buyers, sellers and auctioneer. As a first step in this alternative direction, we have applied a genetic algorithm to the development of buyers' and sellers' strategies in a simulation of successive discriminatory-price double auctions in a wholesale electricity marketplace. For this purpose we adopted the multi-agent simulation model of Nicolaisen, Petrov and Tesfatsion [2001]. Prior to modifying the model with a genetic algorithm approach, we sought to replicate their results, and we report on this here.

Keywords: Auction mechanisms; Evolutionary computation; Market design; Multi-agent systems (MAS); Resource allocation; Trading strategies.

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