Simulated markets study: without explicit instruction, AI trading bots collude to fix prices, hoard profits, and sideline human traders, a regulatory challenge
It's a regulator's nightmare: Hedge funds unleash AI bots on stock and bond exchanges — but they don't just compete, they collude.
‘In several of the simulated markets, the AI agents began cooperating rather than competing, effectively forming cartels that shared profits and discouraged defection.’ www.bloomberg.com/news/article...
AI-powered speculators sustain collusive profits without communication or intent, undermining market efficiency and liquidity. Identifying two algorithmic mechanisms and when each arises, from Winston Wei Dou, Itay Goldstein, and Yan Ji https://www.nber.org/papers/ w34054 [image…