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Agent Based Models and Common Value Auctions

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

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Agent Based Models and Common Value Auctions

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  1. Agent Based Models and Common Value Auctions B. Wade Brorsen

  2. Agent based models (ABM) simulate the actions and interactions of autonomous agents to determine effects on the system as a whole.

  3. Agent-Based Model: Bottom-up Method • Carry out the experiments with programmed agents • Interactive agents with simple rules Initial condition Observed Market Equilibrium

  4. Applications of ABM • Biology • Land Use • Urban Planning • Oligopoly • Auctions

  5. Contrast with Traditional Theory Fully Rational • Maximize profit • Maximize expected utility Boundedly Rational Do what worked last time

  6. Game Theory Small number of players Industrial organization International trade Nash equilibrium

  7. Oligopoly Models Cournot Bertrand Stackelberg

  8. Auctions Private value Common value Affiliated value

  9. Meyers (1988) Matagorda County rice auctions Bids increased as # buyers increased Winner’s curse Bid shading

  10. Relevant Tools to Study Auctions Theoretical Human experiments Agent-based models

  11. Agent Based Models Computerized agents Follow specific rules Simulation or optimization?

  12. Stochastic Global Optimization Evolutionary Algorithms Genetic algorithms Particle swarm Random Restarts

  13. Global Best Local Best 1 Local Best K Select New strategy Select New strategy Agent 1 particle1 particleK Strategy 1 Profit Strategy K Market 1 Market K Agent 2 particle1 particleK Local Best 1 Local Best K Global Best

  14. Convergence to Equilibrium

  15. Software • Many canned packages - Mostly land use • We use Java • Can be slow

  16. Revisiting Mandatory Price Reporting Act of 1999 Using an Agent-Based Model

  17. Objective • Develop an agent-based common-value auction to determine expected effect of Livestock Mandatory Price Reporting Act on packer market power

  18. MPR Literature • Previoustheoretical work disagrees • Recent econometric work shows beef packers’ market power increased after MPR

  19. Theoretical Framework • Previous theoretical work follows Cournot theory • Auction model is closer to how cattle are actually purchased

  20. Auction Structure • First-price common-value auction with a reserve price • Common value for the packers is 0.5

  21. Post MPR Results

  22. Application to Cattle Sales • Reducing either the seller’s or buyers’ uncertainty through USDA-AMS reports created by MPR benefits the seller

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