Thesis research at the University of Minnesota (1974-5) on Games, Goals, and Bounded Rationality.
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Leigh Tesfatsion, "Two Essays on Individual Choice"
(pdf,2.5MB),
PhD Thesis, Department of Economics, 76-15,007 University of Minnesota, Mpls., December 1975.
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The key idea of this thesis is that boundedly-rational decision-makers 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 goal-directed action choice is formulated and axiomatized for concrete demonstration.
Work at the University of Minnesota (1974-5) and University of Southern California (1975-1984) on
Criterion Filtering.
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The following question arises for sequential decision-making under uncertainty: Can the associative mapping between decisions and expected payoffs be directly updated, without recourse to the updating of probabilities?
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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".
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Criterion Filtering (CF): A Dual Approach
to Bayesian Inference and Adaptive Control
Work at University of Southern California (1975-1990) 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 goodness-of-fit metrics. FLS does not require the imposition of problematic stochastic assumptions on "residual error terms" that in fact arise from deterministic model misspecification.
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Flexible Least Squares (FLS): A Multicriteria Optimization Method for Model Specification
Work at University of Southern California (1975-1990) with applied mathematician Bob Kalaba on Adaptive Computation.
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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.
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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 multi-criteria optimization problem requiring a trade-off between two criteria: (i) maintain a short path length; and (ii) avoid regions where calculations became ill-conditioned due, for example, to nearby singularities or bifurcation points.
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Adaptive Computation Methods for Nonlinear Systems;
Work at University of Southern California (1975-1990) and Iowa State University (1990-present) on the Modeling of Economies as Open-Ended Dynamic Systems.
- This work includes, for example, the modeling of macroeconomies as DSGL systems, where
DSGL = DSG(~E) + Learning Agents.
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More precisely, DSGL systems are Dynamic,
Stochastic, and General market-based macroeconomic systems for which decision-making 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.
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Optimality and Efficiency of
Open-Ended Dynamic Economies
Work at ISU (1990-2001) on the Blending of Game Theory with Matching Theory.
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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.
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The Trade Network Game (TNG) Laboratory is open-source demonstration software permitting the beautiful run-time visualization of endogenous trade-network formation among strategic buyers, sellers, and dealers in a sequential trade network game.
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Endogenous Trade Network Formation
and the TNG Laboratory;
Work at ISU (1990-present) on Agent-Based Computational Economics.
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Scientists seek to understand how real-world 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.
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Adherance to this modeling precept was a key goal motivating my development of Agent-Based Computational Economics (ACE), a variant of agent-based modeling characterized by seven specific modeling principles.
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Agent-Based Computational
Economics (ACE): Homepage
Work with electric power engineers at ISU (2000-present) on market-based designs for Integrated Transmission and Distribution Systems.
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The growing penetration of diverse renewable power sources (wind, solar, ...) in modern electric power systems at both the transmission and distribution levels is increasing the uncertainty and volatility of net load, i.e., power demand net of non-dispatchable power generation. This, in turn, is complicating the ability to balance net load with dispatched power supply, a prerequisite for reliable system operations.
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In response to these trends, our ISU project on Integrated Transmission and Distribution (ITD) systems has developed
various types of Transactive Energy System (TES) designs to facilitate the efficient reliable provision of power and ancillary services from a wide array of ITD 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 U.S. electric power systems.
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Integrated Transmission and Distribution (ITD)
Project: ISU Homepage
Work at ISU (2011-present) on a Linked Swing-Contract Market Design for Wholesale Electric Power Markets
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Good market design begins with an appropriate conceptualization of the product being transacted. For centrally managed wholesale power markets operating over high-voltage transmission grids, this product is flows of power ("power-paths") injected and/or withdrawn at specific grid locations during specific operating periods.
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In the Wiley/IEEE Press book cited below, a linked swing-contract market design is proposed for centrally-managed wholesale power markets to facilitate increased reliance on renewable power and demand-side participation. The proposed swing contracts are firm or option two-part pricing contracts permitting resources to offer the just-in-time availability of diverse dispatchable power-paths at designated grid locations during designated future operating periods.
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L. Tesfatsion (2021), A New Swing-Contract Design for Wholesale Power Markets, 20 Chapters, 288pp., John Wiley & Sons, Inc. (IEEE Press Series on Power Engineering), Hoboken, NJ, USA.
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(Intro, Table of Contents, & Refs),
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(Slide-Set Overview: ARPA-E/I-CPIE Talk),
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(Wiley Book Flyer)
Formal Short Bio
