From: bgoffe@seq.uncwil.edu (Bill Goffe)
Subject: Earn money trading against computer programs
Organization: Univ. of North Carolina @ Wilmington
Date: Wed, 16 Dec 1992 22:12:52 GMT



                            ANNOUNCING THE OPENING OF THE

                            ARIZONA TOKEN EXCHANGE (AZTE)

                                  January 1, 1993

Earn cash profits by competing against computerized program traders

THE CHALLENGE

Is "artificial intelligence" superior to human intelligence? In
some domains such as chess, computer programs now outperform all
but the very best human players.  However in other domains such as
speech, handwriting, and other kinds of pattern recognition,
computers lag far behind human beings.  On Wall Street computer
"program traders" are becoming increasingly common, yet there is
substantial controversy over their performance -- they have even
been blamed as a factor in the October 1987 stock market crash. 
The purpose of this study, co-sponsored by the University of
Arizona's Economic Science Laboratory and the Santa Fe Institute,
is to compare the performance of human and program traders to see
whether humans can learn to exploit the limitations  and
idiosyncracies of computers in repeated interactions.

THE ARIZONA TOKEN EXCHANGE 

To compare the performance of human and program traders we have
created a computerized market, the Arizona Token Exchange (AZTE),
in which a fictional commodity, "tokens", are traded.  The market
is a simplified version of commodity exchanges such as the Chicago
Board of Trade where buyers and sellers are able to call out bids
and offers to buy or sell units of the commodity.  In each trading
session on AZTE traders are assigned the role of buyer or seller
and are given an allocation of tokens.  A seller's objective is to
sell their tokens for as much as possible above the token cost and
a buyer's objective is to buy tokens as cheaply as possible below
their redemption value.

By ranking the token costs and redemption values, well-defined
supply and demand curves can be constructed.  The intersection of
these curves defines the so-called competitive equilibrium (CE)
price and quantity, at which neoclassical economic theory predicts
all trading will occur.   The complication is that in the AZTE,
each trader's token costs and redemption values are private
information and differ from trader to trader.  Thus traders in the
AZTE face a complex sequential decision problem: how much should
they bid or offer for their own tokens, how soon should they place a
bid or offer, and under what circumstances should they accept an
outstanding bid or offer of some other trader? An additional
complication is that each trading session runs for a fixed amount
of time.  This creates a difficult trade-off, for if traders spend
too much time looking for a good deal, they may find themselves
locked out of the market without trading anything.

HOW IS TRADER PERFORMANCE EVALUATED?

In the AZTE there is a well-defined performance measure: trading
efficiency, EFF.  This is the ratio of profits a trader actually
earns divided by the profits it would have made if all trades took
place at the competitive equilibrium level.  Thus, if a trader's
EFF is greater than 100% they are earning more than their "fair"
share of the profits.  The use of EFF is more desirable 
performance measure than simply using trading profits, since
profits depend on the token allocations which are allocated at
random from a known distribution.

After each trading session, participants will earn cash profits
equal to the following linear function of their efficiency:

     $ payments =  a + b(EFF-100) 

The term a represents a fixed fee paid for participating in the
trading session and the term b(EFF-100) represents a bonus
(penalty) for trading above (or below) 100% efficiency.  Thus, it
is possible to lose money in any particular trading session. 
Dollar earnings are cumulated over successive trading sessions and
subjects are eligible to "cash out" at any time after participating
in a minimum number of trading sessions (provided cumulative
earnings are positive).

THE OPPONENTS: COMPUTER PROGRAM TRADERS

Unlike real commodities markets where most traders are humans, in
the AZTE all of your opponents will be computer programs.  The
opponent programs will be selected from a field of over 30
different trading strategies including winners of the Santa Fe
Institute's Double Auction Tournament held in March, 1990.  The
program traders range in sophistication from simple rules of thumb
(such as Gode-Sunder "Zero-Intelligence" strategy) to sophisticated
optimizing/learning algorithms (such as neural nets and genetic
algorithms) developed from the recent literature on artificial
intelligence.  The identities of your opponents will (usually) be
revealed to you at the start of each trading session.  You will
also be informed about other market characteristics such as the
number of buyers and sellers, the number of tokens, and the joint
distribution from which token values are drawn.

SETTING UP AN ACCOUNT

To trade on the AZTE you will need a Unix or PC-compatible computer
linked to the Internet computer network.  We provide the trading
interface software that allows you to log on and trade at any time
you like and for as long as you like (subject to general
restrictions).  To qualify for an AZTE trading account you need to
file an application providing information on your address, phone,
and email address, and a release form stating whether or not you
want to remain anonymous in published analyses of the outcome of
this experiment.  Upon receipt of the application we will set up a
trading account and access password.  Your dollar earnings will
cumulate in your account until you decide to cash out, at which
time we will close your account and mail you a check for the total
amount of your earnings.

The software and ASCII traders' manual (including the application
form) is available via anonymous ftp on "fido.econ.arizona.edu", in
the "azte" sub-directory.  The manual (docs/azte.man) explains how the
software works and what is required to use it.  We suggest you ftp
this first and read through it, then get the appropriate trading
interface for your system.  The DOS interface requires VGA graphics
resolution and the use of Crynwr packet drivers (formerly known as
Clarkson packet drivers) for the network interface card.  The Crynwr
drivers are also available via ftp on "fido.econ.arizona.edu".

If you don't have access to anonymous ftp, we will mail you a
diskette containing the software and trader's manual.  To cover the
costs of a diskette and surface mail, send $5.00 to:

       Shawn LaMaster
       Manager, Economic Science Systems Development
       Economic Science Laboratory
       McClelland Hall, Room #116
       University of Arizona
       Tucson, Arizona  85721 
       (602) 621-6218

       Internet: lamaster@ziggy.econ.arizona.edu

We will assist in ftp and setting up the Crynwr packet drivers,
just give us a call.


The AZTE software was co-developed by:

Sean Coates        Economic Science Laboratory, University of Arizona
Shawn LaMaster     Economic Science Laboratory, University of Arizona
Richard G. Palmer  Duke University
John Rust          University of Wisconsin
Vernon L. Smith    Economic Science Laboratory, University of Arizona
Newsgroups: sci.econ