‘Artificial stupidity’ made AI trading bots spontaneously form cartels when left unsupervised, Wharton study reveals

• A study from University of Pennsylvania’s Wharton School and the Hong Kong University of Science and Technology found that when placed in simulated markets, AI trading bots did not compete with one another, but rather began colluding in price-fixing behaviors. According to the study authors, research on how AI behaves in market environments can help regulators understand gaps in existing rules and statutes.

Artificial intelligence is just smart—and stupid—enough to pervasively form price-fixing cartels in financial market conditions if left to their own devices.

A working paper posted earlier this year on the National Bureau of Economic Research website from the Wharton School at the University of Pennsylvania and Hong Kong University of Science and Technology found when AI-powered trading agents were released into simulated markets, the bots colluded with one another, engaging in price fixing to make a collective profit.

In the study, researchers let bots loose in market models, essentially a computer program designed to simulate real market conditions and train AI to interpret market-pricing data, with virtual market makers setting prices based on different variables in the model. These markets can have various levels of “noise,” referring t...