Explorations In Evolutionary Design Of Online Auction Market Mechanisms

Dave Cliff*

Hewlett–Packard Laboratories, Filton Road, Bristol BS34 8QZ, UK

Received 30 October 2002; revised 20 February 2003; accepted 28 February 2003. ; Available online 24 May 2003.

Abstract

This paper describes the use of a genetic algorithm (GA) to find optimal parameter-values for trading agents that operate in virtual online auction `e-marketplaces', where the rules of those marketplaces are also under simultaneous control of the GA. The aim is to use the GA to automatically design new mechanisms for agent-based e-marketplaces that are more efficient than online markets designed by (or populated by) humans. The space of possible auction-types explored by the GA includes the continuous double auction (CDA) mechanism (as used in most of the world's financial exchanges), and also two purely one-sided mechanisms. Surprisingly, the GA did not always settle on the CDA as an optimum. Instead, novel hybrid auction mechanisms were evolved, which are unlike any existing market mechanisms. In this paper we show that, when the market supply and demand schedules undergo sudden `shock' changes partway through the evaluation process, two-sided hybrid market mechanisms can evolve which may be unlike any human-designed auction and yet may also be significantly more efficient than any human designed market mechanism.

Author Keywords: Online auction marketplaces; e-Marketplaces; Automated market mechanism design; Trader-agents; ZIP traders; Genetic algorithms

*Corresponding author. Tel.: +44-117-312-8189; fax: +44-117-312-8924.

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