NetNews Usenet Archive 1992 #31/NN_1992_31.iso/spool/sci/econ/9543

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From: [e-mail] (Arizona Token Exchange)
Newsgroups: sci.econ,misc.invest,rec.games.mud.misc
Subject: The Arizona Token Exchange (AZTE announcement)
Message-ID: <[e-mail]>
Date: 29 Dec 92 07:34:12 GMT
Sender: [e-mail]
Organization: Economic Science Laboratory, University of Arizona
Lines: 142




                         ANNOUNCING THE OPENING OF THE

                         ARIZONA TOKEN EXCHANGE (AZTE)

                                January 1, 1993

      Earn cash profits by competing against computerized program traders

THE CHALLENGE

Is "artificial intelligence" superior to human intelligence? In some domains
such as chess, computer programs now outperform all but the very best human
players.  However in other domains such as speech, handwriting, and other
kinds of pattern recognition, computers lag far behind human beings.  On
Wall Street computer "program traders" are becoming increasingly common,
yet there is substantial controversy over their performance -- they have
even been blamed as a factor in the October 1987 stock market crash.  The
purpose of this study, co-sponsored by the University of Arizona's Economic
Science Laboratory and the Santa Fe Institute, is to compare the performance
of human and program traders to see whether humans can learn to exploit the
limitations and idiosyncracies of computers in repeated interactions.

THE ARIZONA TOKEN EXCHANGE

To compare the performance of human and program traders we have created
a computerized market, the Arizona Token Exchange (AZTE), in which a
fictional commodity, "tokens", are traded.  The market is a simplified
version of commodity exchanges such as the Chicago Board of Trade where
buyers and sellers are able to call out bids and offers to buy or sell units
of the commodity.  In each trading session on AZTE traders are assigned the
role of buyer or seller and are given an allocation of tokens.  A seller's
objective is to sell their tokens for as much as possible above the token
cost and a buyer's objective is to buy tokens as cheaply as possible below
their redemption value.

By ranking the token costs and redemption values, well-defined supply and
demand curves can be constructed.  The intersection of these curves defines
the so-called competitive equilibrium (CE) price and quantity, at which
neoclassical economic theory predicts all trading will occur. The
complication is that in the AZTE, each trader's token costs and redemption
values are private information and differ from trader to trader.  Thus
traders in the AZTE face a complex sequential decision problem: how much
should they bid or offer for their own tokens, how soon should they place a
bid or offer, and under what circumstances should they accept an outstanding
bid or offer of some other trader? An additional complication is that each
trading session runs for a fixed amount of time.  This creates a difficult
trade-off, for if traders spend too much time looking for a good deal, they
may find themselves locked out of the market without trading anything.

HOW IS TRADER PERFORMANCE EVALUATED?

In the AZTE there is a well-defined performance measure: trading efficiency,
EFF.  This is the ratio of profits a trader actually earns divided by the
profits it would have made if all trades took place at the competitive
equilibrium level.  Thus, if a trader's EFF is greater than 100% they are
earning more than their "fair" share of the profits.  The use of EFF is
more desirable performance measure than simply using trading profits,
since profits depend on the token allocations which are allocated at random
from a known distribution.

After each trading session, participants will earn cash profits equal to
the following linear function of their efficiency:

     $ payments =  a + b(EFF-100)

The term a represents a fixed fee paid for participating in the trading
session and the term b(EFF-100) represents a bonus (penalty) for trading
above (or below) 100% efficiency.  Thus, it is possible to lose money in
any particular trading session.  Dollar earnings are cumulated over
successive trading sessions and subjects are eligible to "cash out" at any
time after participating in a minimum number of trading sessions (provided
cumulative earnings are positive).

THE OPPONENTS: COMPUTER PROGRAM TRADERS

Unlike real commodities markets where most traders are humans, in the AZTE
all of your opponents will be computer programs.  The opponent programs
will be selected from a field of over 30 different trading strategies
including winners of the Santa Fe Institute's Double Auction Tournament
held in March, 1990.  The program traders range in sophistication from
simple rules of thumb (such as Gode-Sunder "Zero-Intelligence" strategy)
to sophisticated optimizing/learning algorithms (such as neural nets and
genetic algorithms) developed from the recent literature on artificial
intelligence.  The identities of your opponents will (usually) be revealed
to you at the start of each trading session.  You will also be informed
about other market characteristics such as the number of buyers and sellers,
the number of tokens, and the joint distribution from which token values
are drawn.

SETTING UP AN ACCOUNT

To trade on the AZTE you will need a Unix or PC-compatible computer linked
to the Internet computer network.  We provide the trading interface
software that allows you to log on and trade at any time you like and for
as long as you like (subject to general restrictions).  To qualify for an
AZTE trading account you need to file an application providing information
on your address, phone, and email address, and a release form stating whether
or not you want to remain anonymous in published analyses of the outcome of
this experiment.  Upon receipt of the application we will set up a trading
account and access password.  Your dollar earnings will cumulate in your
account until you decide to cash out, at which time we will close your
account and mail you a check for the total amount of your earnings.

The software and ASCII traders' manual (including the application form)
is available via anonymous ftp on "fido.econ.arizona.edu", in the azte/docs
sub-directory.  The manual (azte.man) explains how the software works and
what is required to use it.  We suggest you ftp this first and read through
it, then get the appropriate trading interface for your system.  The DOS
interface requires VGA graphics resolution and the use of Crynwr packet
drivers (formerly known as the Clarkson packet drivers) for your network
interface card.  The Crynwr drivers are also available via ftp on the host
"fido.econ.arizona.edu" from the azte/PC/Crynwr sub-directory.

If you don't have access to anonymous ftp, we will mail you a diskette
containing the software and trader's manual.  To cover the costs of a
diskette and surface mail, send $5.00 to:

      Shawn LaMaster
      Manager, Economic Science Systems Development
      Economic Science Laboratory
      McClelland Hall, Room #116
      University of Arizona
      Tucson, Arizona  85721
      [phone]

      Internet: [e-mail]

We will assist in ftp and setting up the Crynwr packet drivers, just
give us a call.


The AZTE software was co-developed by:

Sean Coates             Economic Science Laboratory, University of Arizona
Shawn LaMaster          Economic Science Laboratory, University of Arizona
John H. Miller          Carnegie Mellon University
Richard G. Palmer       Duke University
John Rust               University of Wisconsin
Vernon L. Smith         Economic Science Laboratory, University of Arizona