Automated mechanism design using agents based on prospect theory

• Grant number: 11/18325-8
• Support Opportunities: Scholarships abroad - Research
• Start date: July 02, 2012
• End date: January 12, 2013
• Field of knowledge: Physical Sciences and Mathematics - Computer Science - Computing Methodologies and Techniques
• Principal Investigator: PAULO ANDRE LIMA DE CASTRO
• Grantee: PAULO ANDRE LIMA DE CASTRO
• Host Investigator: Simon Dominic Parsons
• Host Institution: Divisão de Ciência da Computação (IEC). Instituto Tecnológico de Aeronáutica (ITA). São José dos Campos , SP, Brazil
• Institution abroad: City University of New York, New York (CUNY), United States

Abstract

In recent article, Farmer and Foley [2] claimed that the agent-based modeling may be a better way to help guide financial policies than traditional mathematical models. The authors argue that such models can accurately predict short periods ahead as long as the scenario remains almost the same, but fail in times of crisis. In fact, analytical methods are used to prove that optimal strategies adopted by agents lead to socially desirable outcomes in mechanism design. However, there are many situations where the underlying assumptions are violated due to disorder in the real world. This disorder may do analytical methods difficult (or impossible) to be used [4]. Another real world problem that is rarely addressed in mechanism design is the fact that humans do not make decisions under risk strictly based on expected utility. In fact, some alternative models are available, such as Prospect theory. Auctions and financial markets can be seen as a situation of decision making under risk. Consider those anomalous behaviors can lead to more accurate projections of the evolution of markets populated by human agents. This context inspired the goal of this work: modeling agents based on the theory of perspective and use them in automated mechanism design, in order to define more appropriate mechanisms for agents with psychological biases deviations as pointed out by the Prospect theory. (AU)

Scientific publications

(References retrieved automatically from Web of Science and SciELO through information on FAPESP grants and their corresponding numbers as mentioned in the publications by the authors)

ANDRE LIMA DE CASTRO, PAULO; BARRETO TEODORO, ANDERSON RODRIGO; DE CASTRO, LUCIANO IRINEU; PARSONS, SIMON. Expected utility or prospect theory: Which better fits agent-based modeling of markets?. JOURNAL OF COMPUTATIONAL SCIENCE, v. 17, n. 1, p. 97-102, NOV 2016. (11/18325-8)

ANDRE LIMA DE CASTRO, PAULO; BARRETO TEODORO, ANDERSON RODRIGO; DE CASTRO, LUCIANO IRINEU; PARSONS, SIMON. Expected utility or prospect theory: Which better fits agent-based modeling of markets?. JOURNAL OF COMPUTATIONAL SCIENCE, v. 17, p. 6-pg., 2016-11-01. (11/18325-8)