Abstract
In this paper we argue that expert systems can be powerful tools for modelling microeconomic systems, including both individual decision making and the coordination of individual agents in a resource allocation mechanism. Using the fact that expert systems are essentially computerized versions of decision processes, we illustrate how they can be viewed as generalized process models of decision-making. We argue that the expert system approach is beneficial because it allows a policy analyst to explore the implication of policy alternatives without having to incur the generally prohibitive cost of field implementation studies. Further, enables the incorporation and updating of decision strategies and qualitative information, which human experts typically use but which is not amenable to pure mathematical modelling.
One particular microeconomic system we suggest could be modelled as an expert system is the OCS offshore oil lease auction process. Moreover, we argue that constructing such an expert system model would require the development of two integrated expert systems: one for the auction process and subsequent resource allocation and the other to model the individual bidding behavior of the auction participants. We set out the structure of the auction expert system in some detail and discuss rules of thumb used by bidders inferred from our empirical research on past OCS auctions.
Such an expert system of an auction leasing process could provide benefits to both bidders (e.g., oil companies) and the auctioneer (e.g., the Department of the Interior) as well. Bidders, by trying different strategies against different hypothesized strategies by their opponents could use such an integrated expert system to improve their bidding performances. The auctioneer, on the other hand, could test the efficiency of various proposed auction institutions under different assumptions about bidding behavior. In some circumstances, it might be desirable to even automate the auction process with a network coordinating the expert systems used by the individual firms and a computerized auctioneer.
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Hoffman, E., Jacob, V.S., Marsden, J.R. et al. Expert systems and economic policy analysis: An application to OCS auction leasing. Computer Science in Economics and Management 1, 113–135 (1988). https://doi.org/10.1007/BF00427159
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DOI: https://doi.org/10.1007/BF00427159