This report describes simple mechanisms that allow autonomous software agents to engage in bargaining behaviors in market-based environments. Groups of agents with such mechanisms could be used in applications including market-based control, internet commerce, and economic modelling. After an introductory discussion of the rationale for this work, and a brief overview of key concepts from economics, work in market-based control is reviewed to highlight the need for bargaining agents. Following this, the early experimental economics work of Smith (1962) and the recent results of Gode and Sunder (1993) are described.

There has been surprisingly little research on how best to predict decisions in conflicts. Managers commonly use their unaided judgement for the task. Game theory and a disciplined use of analogies have been recommended. When tested, experts using their unaided judgement and game theorists performed no better than chance. Experts using structured analogies performed better than chance, but the most accurate forecasts were provided by simulated interaction using student role players. Twenty-one game theorists made 98 forecasts for eight diverse conflicts. Forty-one experts in conflicts made 60 solo forecasts using structured analogies and 96 solo forecasts using unaided judgement (a further seven provided collaborative forecasts only) while 492 participants made 105 forecasts in simulated interactions. Overall, one-in-three forecasts by game theorists and by experts who did not use a formal method were correct. Forecasters who used structured analogies were correct for 45 percent and forecasts from simulated interactions were correct for 62 percent of forecasts. Analysis using alternative measures of accuracy does not affect the findings. Neither expertise nor collaboration appear to affect accuracy. The findings are at odds with the opinions of experts, who expected experts to be more accurate than students regardless of the method used.

Who acted as project supervisor and provided advice and constructive criticism over the past 6 months. The MSc IT Class 2007/2008, For their help with testing and encouragement throughout the year. To all others who tested the project, Your feedback was most appreciated and helped shape the final project. Thanks, Douglas Colquhoun

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Some researchers argue that co-operative behaviour is possible in the commons because individuals, instead of just being concerned with their own material payoffs, are also concerned with the material payoffs of others. In the economic literature these types of preferences are sometimes called "interdependent". However, while there is much informal discussion on the importance of individual preferences in the exploitation of common property resources, there is still little in the way of formal evolutionary modelling. It is in this context that this essay is intended to make a contribution. The main aim of this paper is to study the evolution of altruistic, spiteful and reciprocal preferences in the particular context of local commons using specifically the evolutionary-game-theoretic concept of ESS. In particular, here we explore the “pairwise random matching ” strategic environment in the context of a simple symmetric 2-person CPR game with the strategy set as a continuous variable. In order to study the evolution of preferences in the CPR game we use the so-called “indirect evolutionary approach”. Specifically, we use this approach in the spirit of Bester and Güth’s (1998) work on the evolution of altruistic preferences under pairwise random matching in general. We extend Bester and Güth’s (1998) analysis in the sense that we not only explore the evolutionary stability of altruistic preferences but also the evolutionary stability of spiteful and reciprocal preferences. In particular, here we propose a general specification of reciprocal preferences based on Levine’s model (Levine, 1998). This alternative model of reciprocity allows us to explore the evolution of what we call here “pure reciprocal preferences”.

This paper discusses, from the perspective of Austrian economics, the merits and drawbacks of game theory in economics. It begins by arguing that Austrians have neglected game theory at their peril, and then argues that game theoretic reasoning may be one way of modelling key Austrian insights, although some aspects of game theory doesn’t square easily with Austrian economics. However, a major stumbling block for an Austrian acceptance of game theory may lie in the traditional Austrian resistance to formal methods.

Externalities occur where an economic actor takes a decision which results in actions that affect other parties without their consent. In most cases, the creator of the externality will be a corporation because they are the most important actors in modern economies. There is a market failure as the corporation obtains all the benefits of the activity but does not bear all the costs. Since Ronald Coase’s seminal work, economists have generally argued that externalities should be dealt with either by instrumental regulation or by bargaining between the creator and victim. The regulator should choose between these two options on the basis of cost-benefit analysis. In particular, the costs associated with government intervention should be compared with the transaction costs confronting parties where they attempt to deal with the externality by means of a contract. Most economists assume regulatory costs (including the costs of producing and enforcing regulation and the distortions of economic activity to which it gives rise) will be very high, so the ‘cure ’ of regulation will normally be worse than the ‘disease ’ of externalities, making