Thesis research at the University of Minnesota (19745) on Games, Goals, and Bounded Rationality.

Leigh Tesfatsion, "Two Essays on Individual Choice"
(pdf,2.5MB),
PhD Thesis, Department of Economics, 7615,007 University of Minnesota, Mpls., December 1975.

The key idea of this thesis is that boundedlyrational decisionmakers can supplement partial contingency plans with goals,
thus permitting actions to be undertaken in desired directions despite the absence of complete information. An expected utility model permitting goaldirected action choice is formulated and axiomatized for concrete demonstration.
Work at the University of Minnesota (19745) and University of Southern California (19751984) on
Criterion Filtering.

The following question arises for sequential decisionmaking under uncertainty: Can the associative mapping between decisions and expected payoffs be directly updated, without recourse to the updating of probabilities?

Criterion Filtering (CF) provides an affirmative answer to this question. CF is a learning algorithm that permits the direct updating of expected utility on the basis of sequentially realized utility outcomes, conditional on prior (initial) utility assessments. The CF algorithm thus provides a "Bayes' Rule for Utility".


Criterion Filtering (CF): A Dual Approach
to Bayesian Inference and Adaptive Control
Work at University of Southern California (19751990) with applied mathematician Bob Kalaba on Flexible Least Squares.
 Flexible Least Squares (FLS) is a multicriteria optimization method for model specification. The goal of the FLS method is to identify the "Pareto frontier" of all efficiently estimated models conditional on: (i) a given theory; (ii) a given data set; and (iii) a designated collection of goodnessoffit metrics. FLS does not require the imposition of problematic stochastic assumptions on "residual error terms" that in fact arise from deterministic model misspecification.

Flexible Least Squares (FLS): A Multicriteria Optimization Method for Model Specification
Work at University of Southern California (19751990) with applied mathematician Bob Kalaba on Adaptive Computation.

An adaptive computation method adapts to the problem at hand rather than requiring the problem to be adapted to the method.
Bob Kalaba and I developed a variety of adaptive computation methods for parameterized systems of nonlinear equations.

For example, we developed an adaptive homotopy continuation method for which the standard homotopy continuation parameter, moving from 0 to 1 along the real line, is transformed into a "smart agent" with internal data and methods able to adaptively traverse a path from 0+0i to 1+0i in the complex plane.
This path is derived as the solution to an adaptive multicriteria optimization problem requiring a tradeoff between two criteria: (i) maintain a short path length; and (ii) avoid regions where calculations became illconditioned due, for example, to nearby singularities or bifurcation points.

Adaptive Computation Methods for Nonlinear Systems;
Work at University of Southern California (19751990) and Iowa State University (1990present) on the Modeling of Economies as OpenEnded Dynamic Systems.
 This work includes, for example, the modeling of macroeconomies as DSGL systems, where
DSGL = DSG(~E) + Learning Agents.

More precisely, DSGL systems are Dynamic,
Stochastic, and General marketbased macroeconomic systems for which decisionmaking agents have Learning capabilities. Coordination arises endogenously (if at all) in DSGL systems as a result of successive agent interactions, not from the external imposition of equilibrium assumptions.

Optimality and Efficiency of
OpenEnded Dynamic Economies
Work at ISU (19902001) on the Blending of Game Theory with Matching Theory.

Trading games are explored for concrete demonstration. The endogenous preferential choice and refusal of trading partners (matching theory) is modeled, together with the evolution of trading strategies (game theory). At each point in time the selection of trading partners, and the selection of trading strategies for use with these partners, are determined on the basis of past trade outcomes and initially held beliefs.

The Trade Network Game (TNG) Laboratory is opensource demonstration software permitting the beautiful runtime visualization of endogenous tradenetwork formation among strategic buyers, sellers, and dealers in a sequential trade network game.

Endogenous Trade Network Formation
and the TNG Laboratory;
Work at ISU (1990present) on AgentBased Computational Economics.

Scientists seek to understand how realworld systems work. Models devised for scientific purposes must always simplify reality. However, scientists should be permitted to tailor these simplifications to purposes at hand; they should not be forced to distort reality in specific predetermined ways in order to apply a modeling approach.

Adherance to this modeling precept was a key goal motivating my development of AgentBased Computational Economics (ACE), a specialization to economics of Complete AgentBased Modeling (cABM). The modeling approach cABM is a variant of agentbased modeling characterized by seven specific modeling principles. Any model satisfying these seven specific modeling principles is a computational laboratory permitting explorations of dynamic systems in a manner analogous to biological experimentation with cultures in petri dishes.

AgentBased Computational
Economics (ACE): Homepage

Complete AgentBased Modeling (cABM)
Work at ISU (2011present) on a Linked SwingContract Market Design for Wholesale Electric Power Markets

Good market design begins with an appropriate conceptualization of the product being transacted. For centrallymanaged wholesale electric power markets operating over highvoltage transmission grids, this product is flows of power ("powerpaths") injected and/or withdrawn at specific grid locations during specific operating periods.

In the Wiley/IEEE Press book cited below, a linked swingcontract market design is proposed for centrallymanaged wholesale power markets to facilitate increased reliance on renewable power and demandside participation. The proposed swing contracts are firm or option twopart pricing contracts permitting resources to offer the justintime availability of diverse dispatchable powerpaths at designated grid locations during designated future operating periods.

L. Tesfatsion (2021), A New SwingContract Design for Wholesale Power Markets, 20 Chapters, 288pp., John Wiley & Sons, Inc. (IEEE Press Series on Power Engineering), Hoboken, NJ, USA.
(Intro, Table of Contents, & Refs),
(SlideSet Overview: ARPAE/ICPIE Talk),
(Wiley Book Flyer).
Work with electric power engineers at ISU (2000present) on marketbased designs for Integrated Transmission and Distribution Systems.

The growing reliance of centrallymanaged wholesale electric power markets on renewable power resources poses new challenges for these markets. For example, wind and solar power that is not backstopped by storage can make it more difficult to balance power demand and power supply across the transmission grid, a prerequisite for reliable transmission grid operations.

These challenges have led to efforts by the U.S. Federal Energy Regulatory Commission, such as FERC Order 2222 (September 2020), to increase the participation of distributed power resources in these markets in dispatchable aggregated form. Transactive Energy System (TES) design is a relatively new approach to electric power management that could provide important support for FERC objectives.

In response to these trends, our ISU project on Integrated Transmission and Distribution (ITD) systems has developed
various types of TES designs to facilitate the efficient reliable provision of power and ancillary services from a wide array of ITD power resources in return for appropriate compensation. This ITD TES design research has been supported by the development of ACE software platforms representing the salient operations of actual electric power systems.

Integrated Transmission and Distribution (ITD)
Project: ISU Homepage