Projects

Title	Grant	Year Begun	Year Ended	Authors	Abstract	Downloads
Edgy - Revealed Preferences and General Equilibrium in the Laboratory		2017	Ongoing	Dan Friedman, Ryan Oprea, Sean Crockett	General Equilibrium (GE) theory is the mathematical framework that economists use to understand how markets generate prices and distribute resources within a society. However, GE is impossible to directly test in the field because a primary input, the preferences of individuals, is private information not known to outside analysts. Working in the laboratory over several decades, some economists have instead tested aspects of GE theory by inducing artificial preferences. In parallel, another group of economists has studied how to measure the actual preferences of individuals, using a different body of theory called “Revealed Preferences” that infers individual preferences from choices made in the face of varying prices and income levels. Our first project begins with a slight variation on a prominent revealed preference approach to portfolio choice. Subsequent projects incrementally transform simple preference elicitation into state-of-the-art market trading institutions. Individual decision-making tasks are gradually transformed into full-blown interactive markets, but the mechanics of making choices remains nearly identical throughout, allowing us to reliably compare behavior across settings. A suite of new software tools, called Edgeworks, will implement the entire sequence in a unified visual framework. This research will give insight into the efficiency and stability of interdependent (multi-good) markets, especially important aspects of financial markets. It will also help reveal the robustness of elicited preferences in the face of market experience, including recently controversial aspects such as small stakes risk aversion and reference dependence.
Emergent Networks		2016	Ongoing	Dan Friedman, Curtis Kephart	Using a complete set of transactions within an online trading community, we construct networks of traders and goods, and track them over time. The trading platform was designed to make barter exchange as attractive as possible, and excluded obvious money goods such as gold coins. Yet, within weeks, several specific goods emerged spontaneously as media of exchange and later, various sorts of intermediaries appeared. Eventually, trade was predominantly money-mediated, and the presence of intermediaries apparently reduced transactions costs, especially for larger transactions.
Games Played in Continuous Time		2017	Ongoing	Dan Friedman, Shuchen Zhao	This is the first oTree/Redwood project. We are building software to conduct laboratory experiments with two-person matrix (i.e., bimatrix) games. The bimatrix games are played in either discrete or continuous time and allow for either mixed or pure strategy selections. The project includes pilot sessions as of May 2018. We plan to develop other sorts of two person and multiplayer games with a wider array of different game conditions in the near future.
Google Ad Auctions		2014	Ongoing	Dan Friedman, Kevin McLaughlin	Two different basic auction formats are currently used in online ad auctions. Facebook uses Vickrey-Clarke-Groves (VCG), while Google and others have used mainly Generalized Second Price (GSP). Which format is more efficient in creating value? How is surplus split between buyers and sellers? Do bidders converge to equilibrium behavior? Answers are of real interest to economists and are potentially very valuable to organizations that sell online ads, yet so far there is remarkably little knowledge, at least in the public domain. We use laboratory experiments to compare the formats’ efficiency and revenue capture, using proprietary software that enables real-time bid adjustment.
High Frequency Trading		2016	Ongoing	Axel Ockenfels, Eric Aldrich, Peter Cramton	We have launched a laboratory and field study of high-frequency trading and financial market design. The study will incorporate essential features of financial markets and investigate which market formats best promote liquidity, stability, and efficiency. It will contribute to fundamental knowledge of financial markets and, as a practical matter, provide crucial evidence for improving the design of major financial markets worldwide. A major component of the research will be to develop an exchange platform that emulates the hardware and software of actual financial exchanges. Laboratory subjects will be tested in a variety of environments, through interfaces that serve as algorithmic templates and which communicate directly to the remote exchange platform. Large-scale tournaments, under differing environments and market formats, will be run on a more realistic time scale (e.g. days) and will be comprised of hundreds of participants who will compete for trade profits and prizes. In contrast to the laboratory environment, where the computer interface will serve as a layer of abstraction between the subject and the algorithm that places orders at the exchange, the tournament participants will use template algorithms and an interface to connect directly to the messaging server. Furthermore, the software will allow for flexibility in algorithmic design, so that participants can implement a variety of self-designed trading strategies.
oTree/Redwood Software Development		2017	Ongoing	Dan Friedman, Kristian Lopez Vargas	LEEPS Lab has started to build twenty-first century software infrastructure for conducting a wide variety of human subject experiments. The infrastructure is open sourced, taking advantage of recently developed and innovative general tools for collaborative software development. The software will utilize the increasing power and sophistication of modern web browsers as well as recent trends (in industry, academia, and policy circles) to conduct experiments online. The software, called oTree/Redwood, will be freely available, easy to use, and adaptable to new experimental treatments.
Boiling the Frog Optimally: A Laboratory Experiment	HP Labs Open Innovation 2011	2011	2016	Ciril Bosch-Rosa, Dan Friedman	Internet content providers confront a tricky dilemma. Building original content is costly, but generating revenue to cover these costs is generally inconvenient for visitors (fees or distracting ads) & will reduce their numbers. Even if the proper tradeoff is identified, the question remains of how best to introduce the chosen inconvenience: all at once, or in small increments. One view is that website visitors are like Quinn’s proverbial frogs, and that very few of them will leave if the inconvenience is introduced sufficiently gradually. Another view notes the absence of scientific evidence for the frog proverb, and asserts that it is best to introduce inconvenience all at once. LEEPS Lab is investigating this question.
Census of Experimental Economics Syllabi	None	2015	2016	Dan Friedman	In late 2015 I polled ESA members for tips on how to teach upper division undergraduate Experimental Economics. I am grateful to the many respondents, who provided the trove of materials linked below. I am also grateful to Curtis Kephart for helping organize and post the material. At this Dropbox link, you can find syllabi from more than 30 classes in experimental economics, mostly undergraduate, most of them recent. There seem to be two main approaches: 1. Survey of findings from economics experiments. Many of these focus on behavioral econ issues. 2. How to run an economics experiment. Substantive findings are illustrative and surveys are patchy; the focus is on methods and techniques. Of course, most courses offer some mix of 1 and 2. My own mix tilts more towards 2.
Continuous Games	SES-0925039	2009	2013	Dan Friedman, Ed Hopkins, Gary Charness, James Pettit, Keith Henwood, Ryan Oprea, Timothy Cason	We build a new computer platform, called Continuous Games (ConG), for studying strategic interaction in the laboratory. ConG focuses on continuous games - especially continuous time, but also continuous action sets and "large" player populations. Such continuous settings are often more realistic and easier to learn, and have novel theoretical properties that have never been tested empirically. We use ConG to study games of conflict (e.g., prisoner's dilemma and social dilemmas) and games of coordination in which theory predicts far more efficient behavior in continuous time than in discrete time, as well as to study games in which the unique mixed strategy equilibrium has proven elusive in discrete laboratory environments. We also examine a set of applied games-- such as strategic pricing, quantity setting and location choice -- for which continuous time settings are simply more realistic. The current version of ConG software is downloadable by request. Later it will be accessible via EconPort (a National Digital Library facility). Researchers can run many variants on our games merely by downloading the software and resetting the parameters. With a little programming, they also can run new and quite different continuous games.	Continuous Games Documents
Customer Markets	SBR 9617917	1997	2001	Dan Friedman, Florian Wagener, Garrett Milam, Timothy Cason	Markets with switch costs and consequent buyer-seller attachments are called customer markets, following Okun (1981). Customer markets are interesting for three complementary reasons. First, they are pervasive in modern economics, with a major share of wholesale and intermediate transactions as well as labor and retail. Second, their performance characteristics may differ from auction markets. Third, they are not yet well understood, either theoretically or empirically. Supported by NSF grant SBR 9617917 (1997-2000) we use laboratory experiments to expand empirical knowledge of customer markets.	Customer Markets Documents
Cyberspace Markets	IIS 9986651	2000	2005	Bernardo Huberman, Dan Friedman, Garrett Milam, Kai Pommerenke, Yin-Wong Cheung	Supported by NSF grant IIS 9986651 (2000-2003). Researched effective cyberspace markets. Measured effectiveness in terms of a market's ability to lead intelligent (but self-interested) traders quickly to efficient transactions and to encourage their participation. Methodologies: * theoretical models of market equilibrium and transient performance; * computer simulations of traders and their market interactions; * laboratory markets with human traders interacting with automated traders; and * statistical analysis of recent cyberspace activity.	Customer Markets Documents
Economic Analysis of Recommender Systems	CCF-1101741	2011	2016	Dan Friedman, Thomas Wu, Yi Zhang	A recommender system takes on-line user histories and demographic information, and automatically creates personalized recommendations for goods and services. Already common for small items such as books and movies, such systems are destined to play an increasing role in the economy as new applications emerge such as sourcing or job search. This project will shed broader light on the economic benefits and costs that recommender systems bring to the market.
Electronic Market Design	IIS-0527770	2006	2010	Brian Kluger, Chris Campbell, Dan Friedman, Garrett Milam, Huibin Yan, James C. Cox, Jim Spohrer, Nirvikar Singh, Ryan Opera, Steven Anderson, Steven Gjerstad, Vjollca Sadiraj, Wenjie Zhan	Supported 2006-09 by NSF grant IIS-0527770, this project explores how humans and computerized agents interact in various one- and two-sided market formats. Asynchronous (real-time) interactions are emphasized.	Electronic Market Design Documents
Evolutionary Game Experiments	SES-9023945	1991	1993	Dan Friedman, K.C Fung, Nirvikar Singh, Yin-Wong Cheung	An empirical study of the process by which Nash equilibrium (or other coherent behavior) may be achieved by intelligent self-interested agents in strategic interaction. We present populations of 6-24 undergraduate subjects with chosen payoff (or fitness) functions which embody interesting sorts of strategic interaction. Each subject faces a given payoff function and interacts anonymously with a fixed population of other subjects over 10-100 decision periods. Analysis compares actual time paths of population distributions to various theoretical time paths proposed by biologists and economists, including constant Nash equilibrium and refinements of Nash equilibrium.	Evolutionary Game Experiments Documents
Experimental Asset Markets	SES-8411382	1984	1987	Dan Friedman, Thomas Copeland	Starting at UCLA in 1984, and continuing at UCSC in 1985, we constructed the world's first all-electronic asset trading platform. Traders received public and private information during trading periods. Lead programmers Hekke Ketola at UCLA and April Atwood at UCSC implemented the UNIX platform, which ran on a server in the PI's office over the campus network, and subjects used workstations in campus teaching labs.	Experimental Asset Market Documents
Financial Market Mechanisms	IRI-8812789	1988	1991	Dan Friedman, Joseph Ostroy	Examined alternative electronic trading formats for asset markets, including clearinghouse (or call) and continuous double auction. Focused on the efficiency impact and allocation of surplus when different traders had different privileges, e.g., ability to post price offers. Anticipated (by too many years!) and tried to inform the move to electronic crossing networks, which now carry a large fraction of asset trading volume in the field.	Financial Market Mechanisms Documents
Gradient Dynamics as PDEs		2007	2014	Dan Friedman, Daniel Ostrov	Unfunded research. The payoff or fitness function in a population game defines a ``landscape,'' and each player adjusts her action to move up the payoff gradient. Consequently the landscape changes over time. We extend techniques from nonlinear partial differential equations to analyze the resulting dynamics, and present applications in biology, behavioral ecology, politics, economics, and finance.	Gradient Dynamics as PDE's Documents
Landscape Dynamics	SES-0436509	2005	2009	Dan Friedman, Joel Yellin, Paul Viotti, Ralph Abraham	Supported by NSF grant SES-0436509, this project demonstrates new techniques for social science models. The techniques include nonlinear partial differential equations and agent-based models. The primary application is to financial market dynamics (especially bubbles and crashes), with secondary applications including Downsian voting models and Veblen consumption dynamics. 'Adaptive landscape' is a classic metaphor in theoretical biology. The landscape is defined over an abstract space of potential biological traits, and successful species are represented by peaks, i.e., trait combinations that have the highest fitness. We develop the landscape idea mathematically, drawing on insights and techniques from dynamical systems theory, agent-based systems, evolutionary game theory, and fluid dynamics. The abstract space represents possible choices (in one or more dimensions) by individuals, and the social state is the distribution of actual choices. Then an individual's payoff is a landscape whose shape depends on the social state. Individuals respond to the landscape and seek higher payoff. As they do so, the distribution of choices changes in continuous time, and therefore the landscape also changes. New peaks representing high payoff can appear, and old peaks can disappear, or flatten into plateaus, or move. Thus an application produces a dynamic interplay between social state and landscape. Main website: http://www.vismath.org/research/landscapedyn	Landscape Dynamics Documents
Local Interactions		1997	2001	Alessandra Cassar, Dan Friedman, Nigel Duffy	Latest works in economics have focused on local communities of interactions as a way to model sustainable cooperation - in Prisoner's Dilemma games - and relatively fast coordination on the risk-dominant equilibrium - in Coordination games. We tested in the laboratory some new network theories on how does the network architecture - the pattern of links between individuals - encourage coordination and cooperation. We implemented a computational model - in Swarm - to study how the pattern of relations linking financial institutions - the network - affects the diffusion of financial crises.	Local Interactions Documents
Networked Markets	SBR-0351801	2004	2010	Alessandra Cassar, Dan Friedman, Patricia Higino Schneider	A central theoretical proposition in economics is that frictionless markets perform at 100% efficiency, and require only trivial links between buyers and sellers. Actual markets, however, face moderate to severe trading frictions, and rely on various sorts of buyer-seller links. We introduce two important frictions: possible cheating (e.g., a seller might ship an item of lower quality) and hidden trading opportunities (e.g., a buyer might not be aware of a low cost supplier). We will then introduce networks of links among traders, and examine the impact on market performance, including efficiency, prices, volume, and profit distribution. As suggested by ratings in on-line auctions or by the role of immigrant networks in international trade, the links among network members spread information, e.g., the identity of cheaters or the location of low cost sellers. Such links may boost market performance by fostering trust (based on reputation) and unifying trade. We will choose the network links in early series of experiments and allow traders to build their own networks in later series.	Networked Markets Documents
Optimal and Adaptive Learning Models	SBR-9310347	1993	1997	Aaron Braskin, Dan Friedman, Dominic Massaro, Donald Wittman, Hugh Kelley, Stephanie Crevier, Yin-Wong Cheung,	This grant funded a series of laboratory experiments of individual choice under uncertainty. The primary task, called medical diagnosis, presented the subject with binary-valued cues ("patient's symptoms") and asked for a binary or continuous response representing the more likely disease (or its probability). The results are reported in five academic papers: "Learning to Forecast Price," "Understanding Variability in Binary and Continuous Choice," "Monty Hall's Three Doors: Construction and Deconstruction of a Choice Anomaly," "Broadening the Tests of Learning Models," "A Comparison of Learning Models," We also report results in: Hugh M. Kelley and Daniel Friedman, "Learning to Forecast Rationally," in The Handbook of Experimental Economic Results, C. Plott and V. Smith (eds.) (2000), Elsevier Press, Amsterdam, forthcoming.	Optimal and Adaptive Learning Models Documents
Price Formation and Learning	SBR-9223461	1993	1996	Dan Friedman, Joseph Ostroy, Timothy Cason	A series of laboratory experiments that examine price formation in double auction markets, with a focus on the dynamical processes which may lead to market equilibrium. The experiments feature random individual value and cost parameters independently drawn from known uniform distributions in each trading period.	Price Formation and Learning Documents
Social Preferences & Revealed Altruism		2002	2007	Dan Friedman, James C. Cox, Steven Gjerstad, Vjollca Sadiraj	We introduce parametric and non-parametric models of other-regarding preferences, over my own payoff and others' payoffs. My preferences are systematically affected by my emotional state, which responds to relative status and to the kindness or unkindness of others' choices (``intentions''). The emotional state determines the marginal rate of substitution between my own and others' payoffs, and thus my subsequent choices. The models are applied to a variety of existing and new data sets. The Revealed Altruism paper is a copy of the Econometrica article. The Tractable Model paper is the penultimate version of the Games and Economic Behavior article.	Social Preferences & Revealed Altruism Documents