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ZIP60: Further Explorations in the Evolutionary Design of Online Auction Market Mechanisms

Cliff, Dave


Keyword(s): algorithmic trading; online auction marketplaces; e- marketplaces; automated market mechanism design; trader-agents; ZIP traders; genetic algorithms

Abstract: The Zero-Intelligence Plus ("ZIP") adaptive automated trading algorithm has been demonstrated to outperform human traders in experimental studies of continuous double auction (CDA) markets populated by mixtures of human and "robot" traders. To successfully populate a market with ZIP traders, the values of eight control parameters need to be set correctly. While these eight values can be set manually, previous papers have demonstrated that values of those parameters can be automatically optimized using a genetic algorithm (GA), to tailor ZIP traders to particular markets, and also (by adding an additional real-valued numeric parameter) to automatically discover novel new forms of auction market mechanism that are more efficient than the CDA. This paper introduces a more sophisticated version of the ZIP algorithm, which is shown to produce significantly better results. The extended variant is known as "ZIP60", because it requires 60 real-valued control parameters to be set correctly, and the original ZIP algorithm is re-named "ZIP8" accordingly. Manually choosing the correct values for 60 control parameters would be a very laborious task, but it is demonstrated here that an appropriate automatic optimization process can discover good sets of values for the parameters. A simple GA operating in the 60-dimensional parameter space is shown to produce ZIP60 traders with mean scores significantly improved over ZIP8s, but also with high variance in those improvements. A slight revision of this approach is shown to give results with even higher mean improvements and also with lower variance in those improvements. The revised approach involves giving the GA control over the dimensionality of the parameter space being searched, starting with an eight-dimensional space and then allowing the GA to automatically and gradually expand that space up to sixty-dimensional only when the increased number of parameters leads to identifiably better solutions. The results from ZIP60, while better than ZIP8, show a greatly reduced incidence of cases where the GA discovers auction mechanisms that are significantly better than the fixed CDA mechanism. This may be interpretable as evidence that the earlier ZIP8 results (where improvements on the CDA were common) were consequences of the relative lack of sophistication in the ZIP8 algorithm.

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