1. Automated Bargaining Edward Tsang + Bargaining Research Team Centre for Computational Finance and Economic Agents (CCFEA)CCFEA University of Essex

2. 13 December 2015All Rights Reserved, Edward Tsang Me Supplier ······ Customer ······ Automatic Bargaining Overview Motivation in e-commerce: talk to many n shared variables How to bargain? Aim: to agree on price, delivery time, etc. Constraint: deadlines, capacity, etc. Who to serve? Who to talk to next? Cost Customer Maximize profit Satisfy constraints - purchase - sell - schedule Who do I know? Utility?? Supply price defines my cost Bargaining is a branch of Game Theory

3. 13 December 2015All Rights Reserved, Edward Tsang Realistic Problems eg supply chain Bargaining work at CCFEA No information Perfect information Simple Bargaining Rubinstein Theory Complex Simple TACTAC / SSCM IPD Mathematical Solutions (neat) Approx? Exact? Procedures (scruffy) Design? Evolve? Bargaining games Evol. Comp.

4. 13 December 2015All Rights Reserved, Edward Tsang Essex Automatic Bargaining Research Team Edward Tsang Computing/ CCFEA Constraints, Business models Nanlin Jin Computing Extending Rubinstein Model Evolving strategies Tim Gosling Computing/BT Distributed scheduling Evolving middlemen Biliana Alexandrova-Kabadjova CCFEA/BoMexico Electronic money Payment System Sheri Markose Economics/CCFEA Red Queen Effect Maria Fasli Computing Agent Tech. Wudong Liu BT Distributed Management Abhinay Muthoo Economics Game Theory

5. Bargaining Theory Abhinay Muthoo http://www.essex.ac.uk/economics/ people/staff/muthoo.shtm

6. 13 December 2015All Rights Reserved, Edward Tsang Bargaining in Game Theory  Rubinstein Model:  = Cake to share between A and B (= 1) A and B make alternate offers x A = A’s share (x B =  – x A ) r A = A’s discount rate t = # of rounds, at time Δ per round  A’s payoff x A drops as time goes by A’s Payoff = x A exp(– r A tΔ)  Important Assumptions: –Both players rational –Both players know everything  Equilibrium solution for A:  A = (1 –  B ) / (1 –  A  B ) where  i = exp(– r i Δ) Notice: No time t here 0  ? xAxA xBxB AB Optimal offer: x A =  A at t=0 In reality: Offer at time t = f (r A, r B, t) Is it necessary? Is it rational? (What is rational?)(What is rational?)

7. 13 December 2015All Rights Reserved, Edward Tsang Bargaining is a branch of Game Theory  Game theory is a mathematical framework –A set of methods and tools –For studying strategic situations  Bargaining games constitute the most classic class of games –It involves conflicts (we both want a bigger share) –It need cooperation (we both need a deal asap)  Repeated Games is another big class of games

8. 13 December 2015All Rights Reserved, Edward Tsang Terminology in bargaining theory  Optimal – doing what is best for oneself –In bargaining, what is best for me depends on what the other player does  Subgame – now and at any point in the future  Subgame Perfect Equilibrium (SPE) –Each player deploys a strategy that is best for her at each and every subgame –Optimal strategy by both players

9. Iterative Prisoner’s Dilemma Axelrod’s experiments Tit-for-tat

10. 13 December 2015All Rights Reserved, Edward Tsang Prisoner’s Dilemma Payoffs Player A CooperateDefect Player B Co- operate 10 14 Defect 42 02 What’s the optimal decision for A (or B)? What if this game is repeated?

11. 13 December 2015All Rights Reserved, Edward Tsang Iterated Prisoner’s Dilemma (IPD)  Axelrod organized two tournaments in 1980 –Round one: 14 entries –Round two: 62 entries from 6 countries  Tit-for-Tat was the winner in both runs –Start by cooperation –Then follow whatever the opponent did last round  GRIM is an alternative local optimum –Like Tit-for-Tat, except being unforgiving

12. Trading Agents Competition for E-Commerce Maria Fasli http://cswww.essex.ac.uk/http://cswww.essex.ac.uk/staff/mfasli

13. 13 December 2015All Rights Reserved, Edward Tsang Trading Agents Competition (TAC)  Classic Game (Thalis) –Simultaneous auctions with substitutable and interrelated goods –Dynamic bid configuration depending on historical data, current state and projected state –Application of Strategic Demand Reduction –Domain-specific heuristics –3 rd and 4 th positions in TAC 2003 and 2004 respectively

14. 13 December 2015All Rights Reserved, Edward Tsang TAC Work at Essex  Supply Chain Management Game (Socrates) –An agent acts as a reverse auctioneer with the suppliers in multi-attribute auctions with substitutable and interrelated goods. Suppliers use a reputation mechanism and their delivery may be partial or complete –Dynamic scheduling for production and delivery –Ordering strategy and factory utilisation are interdependent and crucial –ICEC-03: 7 th position

15. 13 December 2015All Rights Reserved, Edward Tsang Local Constraint Optimisation  Every agent is self-centred  Agents constrain each other  The simplest form of local constraint satisfaction / optimisation above –All deeper research depends on strategy in this problem SellerBuyer Cost Utility Agreed price Sell by dateBuy by date

16. Discussions on Bargaining http://www.bracil.net/finance/bargain/

17. 13 December 2015All Rights Reserved, Edward Tsang What is Rationality?  Are we all logical?  What if Computation is involved?  Does Consequential Closure hold? –If we know P is true and P  Q, then we know Q is true –We know all the rules in Chess, but not the optimal moves due to combinatorial explosioncombinatorial explosion  “Rationality” depends on computation power! –Think faster  “more rational”

18. 13 December 2015All Rights Reserved, Edward Tsang Combinatorial Explosion 1 2 3 4 5 6 7 8 ABCD EFG H 124816 3264 128 10 19  Put 1 penny in square 1  2 pennies in square 2  4 pennies in square 3, etc.  Even the world’s richest man can’t afford it –10 19 p = £100,000,000 Billion

19. 13 December 2015All Rights Reserved, Edward Tsang Stochastic Search, Motivation  Schedule 30 jobs to 10 machines: –Search space: 10 30 leaf nodes  Generously allow: –Explore one in every 10 10 leaf nodes! –Examine 10 10 nodes per second!  Problem may take 300 years to solve!!! –May be lucky to find first solution –But finding optimality takes time –Complete methods limited by combinatorial explosioncombinatorial explosion

20. Game Theory Hall of Frame John HarsanyiJohn NashReinhard Selten Robert AumannThomas Schelling 1994 Nobel Prize 2005 Nobel Prize Alvin RothLloyd Shapley 2012 Nobel Prize

21. 13 December 2015All Rights Reserved, Edward Tsang 1994 Nobel Economic Prize Winners John Harsanyi (Berkeley) Incomplete information John Forbes Nash John Forbes Nash (Princeton) Non-cooperative games Reinhard SeltenReinhard Selten (Bonn) Bounded rationality (after Herbert Simon) Experimental economicsHerbert Simon

22. 13 December 2015All Rights Reserved, Edward Tsang 1978 Nobel Economic Prize Winner  Artificial intelligence  “For his pioneering research into the decision- making process within economic organizations"  “The social sciences, I thought, needed the same kind of rigor and the same mathematical underpinnings that had made the "hard" sciences so brilliantly successful. ”  Bounded Rationality –A Behavioral model of Rational Choice 1957 Sources: http://nobelprize.org/economics/laureates/1978/ http://nobelprize.org/economics/laureates/1978/simon-autobio.htmlhttp://nobelprize.org/economics/laureates/1978/ Herbert Simon (CMU) Artificial intelligence

23. 13 December 2015All Rights Reserved, Edward Tsang 2005 Nobel Economic Prizes Winners  Robert J. Aumann, and Thomas C. Schelling won 2005’s Noel memorial prize in economic sciences  For having enhanced our understanding of conflict and cooperation through game-theory analysis Robert J. Aumann 75 Thomas C. Schelling 84 Source: http://www.msnbc.msn.com/id/9649575/ Updated: 2:49 p.m. ET Oct. 10, 2005http://www.msnbc.msn.com/id/9649575/

24. 13 December 2015All Rights Reserved, Edward Tsang Robert J. Aumann Winner of 2005 Nobel Economic Prize  Born 1930  Hebrew Univ of Jerusalem & US National Academy of Sciences  “Producer of Game Theory” (Schelling)  Repeated games  Defined “Correlated Equilibrium” –Uncertainty not random –But depend on info on opponent  Common knowledge

25. 13 December 2015All Rights Reserved, Edward Tsang Thomas C. Schelling Winner of 2005 Nobel Economic Prize  Born 1921  University of Maryland  “User of Game Theory” (Schelling)  Book “The Strategy of Conflict” 1960 –Bargaining theory and strategic behavior  “Book Arms and Influence” 1966 –foreign affairs, national security, nuclear strategy,...  Paper “Dynamic models of segregation” 1971 –Small preference to one’s neighbour  segregation

26. 13 December 2015All Rights Reserved, Edward Tsang Alvin E Roth Winner of 2012 Nobel Economic Prize  Born 1951  Columbia, Stanford  “Game theory for real world problems”  Case study in game theory –Stable Marriage Problem –National Resident Matching Problem

27. 13 December 2015All Rights Reserved, Edward Tsang Lloyd Shapley Winner of 2012 Nobel Economic Prize  Born 1923  UCLA  Mathematical economics  Game theory –Including stochastic games –Applications include the stable marriage problem  Shapley-Shubik power index –For ranking planning and group decision-making