{"type":"ScholarlyArticle","title":"A Cloaking Mechanism to Mitigate Market Manipulation","authors":[{"name":"Xintong Wang","slug":"xintong-wang","given":"Xintong","family":"Wang","affiliation":"University of Michigan , Ann Arbor"},{"name":"Yevgeniy Vorobeychik","slug":"yevgeniy-vorobeychik","given":"Yevgeniy","family":"Vorobeychik","affiliation":"Vanderbilt University"},{"name":"Michael P. Wellman","slug":"michael-p-wellman","given":"Michael P.","family":"Wellman","affiliation":"University of Michigan , Ann Arbor"}],"abstract":"We propose a cloaking mechanism to deter spoofing, a form of manipulation in financial markets. The mechanism works by symmetrically concealing a specified number of price levels from the inside of the order book. To study the effectiveness of cloaking, we simulate markets populated with background traders and an exploiter, who strategically spoofs to profit. The traders follow two representative bidding strategies: the non-spoofable zero intelligence and the manipulable heuristic belief learning. Through empirical game-theoretic analysis across parametrically different environments, we evaluate surplus accrued by traders, and characterize the conditions under which cloaking mitigates manipulation and benefits market welfare. We further design sophisticated spoofing strategies that probe to reveal cloaked information, and find that the effort and risk exceed the gains.","doi":"10.24963/ijcai.2018/75","url":"https://ijcai.org/proceedings/2018/75","pdf":"https://ijcai.org/proceedings/2018/0075.pdf","markdown":"https://ijcai.org/proceedings/2018/75.md","bibtex":"https://ijcai.org/proceedings/2018/bibtex/75","volume":{"slug":"2018","title":"Proceedings of the Twenty-Seventh International Joint Conference on Artificial Intelligence","short_title":"IJCAI 2018","url":"https://ijcai.org/proceedings/2018/","year":2018,"location":"Stockholm","dates":"13-19 July 2018","editors":"Jérôme Lang","isbn":"978-0-9992411-2-7","publisher":"International Joint Conferences on Artificial Intelligence Organization","doi_prefix":"10.24963/ijcai.2018"},"section":"Agent-based and Multi-agent Systems","track":"Main track","number":75,"pages":{"first":541,"last":547},"keywords":["Agent-based and Multi-agent Systems: Economic Paradigms, Auctions and Market-Based Systems","Agent-based and Multi-agent Systems: Agent-Based Simulation and Emergence","Multidisciplinary Topics and Applications: Finance"],"videos":[],"references":[{"position":1,"raw":"[Barreno et al., 2006] Marco Barreno, Blaine Nelson, Rus- sell Sears, Anthony D. 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