![](bg2.png)
past ten years, we observed that it is now possible to
re-create the necessary laboratory apparatus using
low-cost “netbook” PCs for a total cost of only a few
thousand dollars. With that motivation, we have
designed and implemented an experimental
economics laboratory network trading system, where
“trader terminal” netbooks communicate with a
central “exchange” server, with the potential for
multiple instruments to be traded simultaneously in
varying quantities, and with every quote in the
marketplace, and details of all transactions, written
to a database as a single “consolidated tape” record
of the trading events (to sub-second timestamp
accuracy) over the course of a trading experiment.
This trading system, which is called “OpEx” (from
Open Exchange) will be open-sourced under a
creative commons license in the near future (De
Luca, forthcoming 2011). In this paper, we report on
the use of OpEx to replicate IBM’s IJCAI-01 results
from testing human traders against ZIP and the most
recent evolution in the “GD” class of algorithmic
traders: GDX (Tesauro & Bredin, 2002). To the best
of our knowledge, these are the first results from
testing GDX against humans. We find that our
results agree with IBM in the respect that the GDX
and ZIP robot traders consistently out-perform the
human traders, but our results differ from IBM’s in
that we find that GDX outperforms ZIP, while in the
IBM study ZIP slightly outperforms EGD on
average. Our results are also in line with those
achieved by Tesauro & Bredin: in pure robot vs.
robot competitions, GDX outperforms ZIP and
proves to be a major improvement of the original
GD algorithm.
2 BACKGROUND
Today, the vast majority of financial products are
traded electronically: following exact rules, buyers
and sellers, collectively known as traders, interact in
a common virtual “marketplace” to trade those
products. The numerous organisations that are in
place to allow electronic trading of financial
securities are known as exchanges, or sometimes
markets. The set of rules that define the exchange
process between traders on a market forms its
market mechanism, of which the continuous double
auction (CDA) is the most used due to its high
efficiency:
“Markets organised under double-auction trading
rules appear to generate competitive outcomes
more quickly and reliably than markets organised
under any alternative set of trading rules.” (Davis
& Holt, 1993)
In a CDA, traders can make bids and accept
offers asynchronously at any time during the trading
day (that is, the fixed-duration trading period during
which trading is allowed). All the offers are usually
publicly visible by all market participants, and a
trade is made whenever the outstanding bid is
greater than or equal to the outstanding ask.
Although it is made up of simple rules, the
nonlinearities of the CDA are too complex to be
analysed by traditional mathematical methods such
as game theory: as a results, researchers have turned
to empirical approaches.
In his Nobel-prize-winning work, Vernon Smith
(1962) ran several experiments with human traders,
and demonstrated that markets governed by the
CDA can reach close-to-optimal efficiency. Also, he
proved that transaction prices converge to the
market’s theoretical competitive equilibrium price,
where the supply and demand curves intersect.
Furthermore, he found that if the supply and demand
of markets suddenly changed, the transaction prices
would rapidly converge to the new equilibrium
price. In many of his experiments, Smith studied the
dynamics of CDA-based markets by assigning one
unit to sell(buy) at no less(more) than a specific
price to each of the traders. The price of the unit,
known as limit price, represents the maximum
amount of money l a buyer can spend to buy the
unit, or the minimum value c for which a seller can
sell the unit. As a consequence, buyers make a profit
l-p if they buy at a price p that is less than their limit
price, whereas sellers make a profit p-c if they sell
for a price p higher than their limit price. The limit
prices are private, each trader knowing only her
limit. The traders interact by quoting the price at
which they are willing to trade their units. In Smith’s
early experiments this happened by speaking the
number out loud, thus the public quotes in a CDA
are often referred to as shouts. A random player is
selected every turn to make a shout, and the game
finishes after a fixed number of turns. Following the
rules of the CDA, a trade occurs when the
outstanding bid is greater than or equal to the
outstanding ask. Smith measured the performance of
a trader in terms of allocative efficiency, which is the
total profit earned by the trader divided by the
maximum theoretical profit of that trader, expressed
as a percentage. The maximum theoretical profit of a
trader is the profit that trader could have made if all
the market participants would have traded their units
at the theoretical competitive market equilibrium
price. A further measure of the performance of a
ICAART 2011 - 3rd International Conference on Agents and Artificial Intelligence
352