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AI trading agents formed price-fixing cartels when put in simulated markets, Wharton study reveals

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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 this month 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 to the amount of conflicting information and price fluctuation in the various market contexts. While some bots were trained to behave like retail investors and others like hedge funds, in many cases, the machines engaged in “pervasive” price-fixing behaviors by collectively refusing to trade aggressively—without being explicitly told to do so.

In one algorithmic model looking at price-trigger strategy, AI agents traded conservatively on signals until a large enough market swing triggered them to trade very aggressively. The bots, trained through reinforcement learning, were sophisticated enough to implicitly understand that widespread aggressive trading could create more market volatility.

In another model, AI bots had over-pruned biases and were trained to internalize that if any risky trade led to a negative outcome, they should not pursue that strategy again. The bots traded conservatively in a “dogmatic” manner, even when more aggressive trades were seen as more profitable, collectively acting in a way the study called “artificial stupidity.”

“In both mechanisms, they basically converge to this pattern where they are not acting aggressively, and in the long run, it’s good for them,” study co-author and Wharton finance professor Itay Goldstein told Fortune.

Financial regulators have long worked to address anti-competitive practices like collusion and price fixing in markets. But in retail, AI has taken the spotlight, particularly as legislators call on companies to address algorithmic pricing. For example, Sen. Ruben Gallego (D-Ariz.) called Delta’s practice of using AI to set individual airfare prices “predatory pricing,” though the airline previously told Fortune its fares are “publicly filed and based solely on trip-related factors.”

“For the [Securities and Exchange Commission] and those regulators in financial markets, their primary goal is to not only preserve this kind of stability, but also ensure competitiveness of the market and market efficiency,” Winston Wei Dou, Wharton professor of finance and one of the study’s authors, told Fortune.

With that in mind, Dou and two colleagues set out to identify how AI would behave in a financial market by putting trading agent bots into various simulated markets based on high or low levels of “noise.” The bots ultimately earned “supra-competitive profits” by collectively and spontaneously deciding to avoid aggressive trading behaviors.

“They just believed sub-optimal trading behavior as optimal,” Dou said. “But it turns out, if all the machines in the environment are trading in a ‘sub-optimal’ way, actually everyone can make profits because they don’t want to take advantage of each other.”

Simply put, the bots didn’t question their conservative trading behaviors because they were all making money and therefore stopped engaging in competitive behaviors with one another, forming de-facto cartels.

Fears of AI in financial services

With the ability to increase consumer inclusion in financial markets and save investors time and money on advisory services, AI tools for financial services, like trading agent bots, have become increasingly appealing. Nearly one third of U.S. investors said they felt comfortable accepting financial planning advice from a generative AI-powered tool, according to a 2023 survey from financial planning nonprofit CFP Board. A report last week from cryptocurrency exchange MEXC found that among 78,000 Gen Z users, 67% of those traders activated at least one AI-powered trading bot in the previous fiscal quarter.

But for all their benefits, AI trading agents aren’t without risks, according to Michael Clements, director of financial markets and community at the Government Accountability Office (GAO). Beyond cybersecurity concerns and potentially biased decision-making, these trading bots can have a real impact on markets.

“A lot of AI models are trained on the same data,” Clements told Fortune. “If there is consolidation within AI so there’s only a few major providers of these platforms, you could get herding behavior—that large numbers of individuals and entities are buying at the same time or selling at the same time, which can cause some price dislocations.” 

Jonathan Hall, an external official on the Bank of England’s Financial Policy Committee, warned last year of AI bots encouraging this “herd-like behavior” that could weaken the resilience of markets. He advocated for a “kill switch” for the technology, as well as increased human oversight.

Exposing regulatory gaps

Clements explained many financial regulators have so far been able to apply well-established rules and statutes to AI, saying for example, “Whether a lending decision is made with AI or with a paper and pencil, rules still apply equally.”

Some agencies, such as the SEC, are even opting to fight fire with fire, developing AI tools to detect anomalous trading behaviors.

“On the one hand, you might have an environment where AI is causing anomalous trading,” Clements said. “On the other hand, you would have the regulators in a little better position to be able to detect it as well.”

According to Dou and Goldstein, regulators have expressed interest in their research, which the authors said has helped expose gaps in current regulation around AI in financial services. When regulators have previously looked for instances of collusion, they’ve looked for evidence of communication between individuals, with the belief that humans can’t really sustain price-fixing behaviors unless they’re corresponding with one another. But in Dou and Goldstein’s study, the bots had no explicit forms of communication.

“With the machines, when you have reinforcement learning algorithms, it really doesn’t apply, because they’re clearly not communicating or coordinating,” Goldstein said. “We coded them and programmed them, and we know exactly what’s going into the code, and there is nothing there that is talking explicitly about collusion. Yet they learn over time that this is the way to move forward.”

The differences in how human and bot traders communicate behind the scenes is one of the “most fundamental issues” where regulators can learn to adapt to rapidly developing AI technologies, Goldstein argued.

“If you use it to think about collusion as emerging as a result of communication and coordination,” he said, “this is clearly not the way to think about it when you’re dealing with algorithms.”



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Not all CEOs favor Trump’s executive order to block state AI laws

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Good morning. What do companies in health care, insurance, utilities, construction, professional services, financial services, education, transportation, waste management, and alcohol/cannabis distribution, among others, have in common? They’re regulated at the state level. In certain areas (food safety, environmental standards and data privacy), a mix of state and federal mandates apply. Washington sets the baseline, and individual states layer on laws that aim to reflect the priorities of local voters. In the absence of a federal missive, like Roe v. Wade in legalizing abortion, state regulations apply.

So one might assume that CEOs would welcome Donald Trump’s executive order on AI last week that blocks state laws setting AI standards in favor of “a minimally burdensome national standard.” Silicon Valley types like OpenAI CEO Sam Altman, venture capitalist Marc Andreessen and, of course, AI czar David Sacks, praise the move as necessary for America to compete against the bête noire of China. But seven leaders I spoke with had more mixed views. (I spoke to them without attribution to encourage honest feedback.)

Nobody wants a growing patchwork of state laws that cause confusion, rising compliance costs, or what one person called “a race to be the Delaware of AI.” But neither do they want a vacuum when it comes to mitigating the risks or a situation where laws are set by the White House instead of Congress. Among the concerns:

The Executive Order is probably not legal. Everyone agreed that Trump can’t dismiss state rights with the stroke of a pen. As law firm Fisher Phillips notes, “all current and pending state and local AI laws will remain enforceable unless and until a court blocks them through an injunction, or Congress passes a federal law that preempts them.” The consensus: Congress should act—and fear-mongering doesn’t help. “I’m in a state with a lot of regulation and a lot of innovation,” said one California-based CEO. “What matters is resources, talent and technology.”

Businesses want clarity and protection. Tennessee’s ELVIS Act protects individuals from the unauthorized use of AI to mimic their voice and likeness; Texas prohibits its use for unlawful discrimination or sexually explicit content. Colorado requires companies to inform consumers when AI is used for high-stakes decisions from hiring to lending. Smaller businesses want the behemoths of tech kept in check. “Rules can level the playing field,” said one source, “and it’s more expensive to set standards in court.”

The U.S. needs to maintain its competitive edge. The EU Artificial Intelligence Act gives people the right to opt out of having their data used to train models, which stifles innovation. China has an AI Plus framework and President Xi Jinping has proposed creating a World Artificial Intelligence Cooperation Organization (WAICO) to promote a global governance system. The U.S. needs to, as one person put it, have a seat at the table with laws that protect copyright, patents, market access and consumer protections while driving regulation. “I’d rather have less regulation than more regulation,” an enterprise tech leader told me on Friday, “but I’d rather have some regulation than no regulation.”

Contact CEO Daily via Diane Brady at diane.brady@fortune.com

Top news

Weekend mass shootings

Australia Prime Minister Anthony Albanese has vowed action to tighten gun laws after a father and son, using legally licensed firearms, killed 15 people at a Hanukkah celebration at Bondi Beach. Meanwhile, Brown University has called off final exams and sent students home early after a gunman killed two and injured nine in an on-campus shooting. 

David Zaslav’s potential payday

Warner Bros. Discovery CEO David Zaslav is poised to collect as much as $1 billion from the sale of WBD if the bidding war between Netflix and Paramount continues to drive up the company’s stock price. His enormous payout will contrast starkly with the job cuts that are expected regardless of which deal goes through and the cost-cutting he’s already imposed at WBD. 

Volkswagen’s Germany closure

Volkswagen will cease production at a Dresden, Germany, plant on Tuesday, the first time it’s shuttered a production facility in Germany in 88 years. Europe’s largest automaker is contending with weak demand in China and Europe and the sting of U.S. tariffs. 

Private equity squeezes fire departments

Companies backed by private equity firms are quietly buying up the public safety systems needed to fight fires and increasing costs for budget-constrained U.S. fire departments, 85% of which are crewed by volunteers. 

Google’s SpaceX gain

Google parent Alphabet is poised to record another gain as the value of SpaceX nears $800 billion. Elon Musk’s rocket company completed a tender offer that priced shares at $421. Alphabet joined Fidelity Investments in a $1 billion funding round in 2015 in exchange for what was then a 10% stake in SpaceX. 

Christmas kitsch boom

Connecticut is cashing in on its role in sappy Christmas movies. Locations in the state are the settings for at least 22 Christmas movies by Hallmark, Lifetime and others, and it’s now promoting tours of the quaint towns and cities where the predictable—but hugely popular—movies are filmed.

The markets

S&P 500 futures are up 0.44% this morning. The last session closed down 1.07%. STOXX Europe 600 was up 0.75% in early trading. The U.K.’s FTSE 100 was up 0.88% in early trading. Japan’s Nikkei 225 was down 1.31%. China’s CSI 300 was down 0.63%. The South Korea KOSPI was down 1.84%. India’s NIFTY 50 was down 0.07%. Bitcoin went to $90K.

Around the watercooler

The Asian Infrastructure Investment Bank’s first president defends China’s role as ‘responsible stakeholder’ in a less multilateral world by Nicholas Gordon

Kevin Hassett says he’d be happy to talk to Trump everyday as Fed chair, but the president’s opinion would have ‘no weight’ on the FOMC by Jason Ma

Atlantic CEO Nick Thompson on how he learned to ‘just keep moving forward’ after his famous firing at 22 by Nick Lichtenberg

Everything the Trump administration is doing in Venezuela involves oil and regime change—even if the White House won’t admit it by Jordan Blum

CEO Daily is compiled and edited by Claire Zillman and Lee Clifford.



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Rob Reiner, comedy legend who directed ‘When Harry Met Sally’ and ‘Spinal Tap,’ dead at 78

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Rob Reiner, the son of a comedy giant who went on to become one, himself, as one of the preeminent filmmakers of his generation with movies such as “The Princess Bride,” “When Harry Met Sally …” and “This Is Spinal Tap,” has died. He was 78.

Reiner and his wife, Michele Singer, were found dead Sunday at their home in the Brentwood neighborhood of Los Angeles. A law enforcement official briefed on the investigation confirmed that Reiner and Singer were the victims. The official could not publicly discuss details of the investigation and spoke to The Associated Press on condition of anonymity.

Authorities were investigating an “apparent homicide,” said Capt. Mike Bland with the Los Angeles Police Department. The Los Angeles Fire Department said it responded to a medical aid request shortly after 3:30 p.m.

Reiner grew up thinking his father, Carl Reiner, didn’t understand him or find him funny. But the younger Reiner would in many ways follow in his father’s footsteps, working both in front and behind the camera, in comedies that stretched from broad sketch work to accomplished dramedies.

“My father thought, ‘Oh, my God, this poor kid is worried about being in the shadow of a famous father,’” Reiner said, recalling the temptation to change his name to “60 Minutes” in October. “And he says, ‘What do you want to change your name to?’ And I said, ‘Carl.’ I just wanted to be like him.”

After starting out as a writer for “The Smothers Brothers Comedy Hour,” Reiner’s breakthrough came when he was, at age 23, cast in Norman Lear’s “All in the Family” as Archie Bunker’s liberal son-in-law, Michael “Meathead” Stivic. But by the 1980s, Reiner began as a feature film director, churning out some of the most beloved films of that, or any, era. His first film, the largely improvised 1984 cult classic “This Is Spinal Tap,” remains the urtext mockumentary.

After the 1985 John Cusack summer comedy, “The Sure Thing,” Reiner made “Stand By Me” (1986), “The Princess Bride” (1987) and “When Harry Met Sally …” (1989), a four-year stretch that resulted in a trio of American classics, all of them among the most often quoted movies of the 20th century.

A legacy on and off screen

For the next four decades, Reiner, a warm and gregarious presence on screen and an outspoken liberal advocate off it, remained a constant fixture in Hollywood. The production company he co-founded, Castle Rock Entertainment, launched an enviable string of hits, including “Seinfeld” and “The Shawshank Redemption.” By the turn of the century, its success rate had fallen considerably, but Reiner revived it earlier this decade. This fall, Reiner and Castle Rock released the long-in-coming sequel “Spinal Tap II: The End Continues.”

All the while, Reiner was one of the film industry’s most passionate Democrat activists, regularly hosting fundraisers and campaigning for liberal issues. He was co-founder of the American Foundation for Equal Rights, which challenged in court California’s ban on same-sex marriage, Proposition 8. He also chaired the campaign for Prop 10, a California initiative to fund early childhood development services with a tax on tobacco products. Reiner was also a critic of President Donald Trump.

That ran in the family, too. Reiner’s father opposed the Communist hunt of McCarthyism in the 1950s and his mother, Estelle Reiner, a singer and actor, protested the Vietnam War.

“If you’re a nepo baby, doors will open,” Reiner told the Guardian in 2024. “But you have to deliver. If you don’t deliver, the door will close just as fast as it opened.”

‘All in the Family’ to ‘Stand By Me’

Robert Reiner was born in the Bronx on March 6, 1947. As a young man, he quickly set out to follow his father into entertainment. He studied at the University of California, Los Angeles film school and, in the 1960s, began appearing in small parts in various television shows.

But when Lear saw Reiner as a key cast member in “All in the Family,” it came as a surprise to the elder Reiner.

“Norman says to my dad, ‘You know, this kid is really funny.’ And I think my dad said, ‘What? That kid? That kid? He’s sullen. He sits quiet. He doesn’t, you know, he’s not funny.’ He didn’t think I was anyway,” Reiner told “60 Minutes.”

On “All in the Family,” Reiner served as a pivotal foil to Carroll O’Connor’s bigoted, conservative Archie Bunker. Reiner was five times nominated for an Emmy for his performance on the show, winning in 1974 and 1978. In Lear, Reiner also found a mentor. He called him “a second father.”

“It wasn’t just that he hired me for ‘All in the Family,’” Reiner told “American Masters” in 2005. “It was that I saw, in how he conducted his life, that there was room to be an activist as well. That you could use your celebrity, your good fortune, to help make some change.”

Lear also helped launch Reiner as a filmmaker. He put $7.5 million of his own money to help finance “Stand By Me,” Reiner’s adaptation of the Stephen King novella “The Body.” The movie, about four boys who go looking for the dead body of a missing boy, became a coming-of-age classic, made breakthroughs of its young cast (particularly River Phoenix) and even earned the praise of King.

With his stock rising, Reiner devoted himself to adapting William Goldman’s 1973’s “The Princess Bride,” a book Reiner had loved since his father gave him a copy as a gift. Everyone from François Truffaut to Robert Redford had considered adapting Goldman’s book, but it ultimately fell to Reiner (from Goldman’s own script) to capture the unique comic tone of “The Princess Bride.” But only once he had Goldman’s blessing.

“At the door he greeted me and he said, ‘This is my baby. I want this on my tombstone. This is my favorite thing I’ve ever written in my life. What are you going to do with it?’” Reiner recalled in a Television Academy interview. “And we sat down with him and started going through what I thought should be done with the film.”

Though only a modest success in theaters, the movie — starring Cary Elwes, Mandy Patinkin, Wallace Shawn, André the Giant and Robin Wright — would grow in stature over the years, leading to countless impressions of Inigo Montoya’s vow of revenge and the risky nature of land wars in Asia.

‘When Harry Met Sally …”

Reiner was married to Penny Marshall, the actor and filmmaker, for 10 years beginning in 1971. Like Reiner, Marshall experienced sitcom fame, with “Laverne & Shirley,” but found a more lasting legacy behind the camera.

After their divorce, Reiner, at a lunch with Nora Ephron, suggested a comedy about dating. In writing what became “When Harry Met Sally …” Ephron and Reiner charted a relationship between a man and a woman (played in the film by Billy Crystal and Meg Ryan) over the course of 12 years.

Along the way, the movie’s ending changed, as did some of the film’s indelible moments. The famous line, “I’ll have what she’s having,” said after witnessing Ryan’s fake orgasm at Katz’s Delicatessen, was a suggestion by Crystal — delivered by none other than Reiner’s mother, Estelle.

The movie’s happy ending also had some real-life basis. Reiner met Singer, a photographer, on the set of “When Harry Met Sally …” In 1989, they were wed. They had three children together: Nick, Jake and Romy.

Reiner’s subsequent films included another King adaptation, “Misery” (1990) and a pair of Aaron Sorkin-penned dramas: the military courtroom tale “A Few Good Men” (1992) and 1995’s “The American President.”

By the late ’90s, Reiner’s films (1996’s “Ghosts of Mississippi,” 2007’s “The Bucket List”) no longer had the same success rate. But he remained a frequent actor, often memorably enlivening films like “Sleepless in Seattle” (1993) and “The Wolf of Wall Street” (2013). In 2023, he directed the documentary “Albert Brooks: Defending My Life.”

In an interview earlier this year with Seth Rogen, Reiner suggested everything in his career boiled down to one thing.

“All I’ve ever done is say, ‘Is this something that is an extension of me?’ For ‘Stand by Me,’ I didn’t know if it was going to be successful or not. All I thought was, ‘I like this because I know what it feels like.’”



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Hero bystander who tackled Bondi gunman praised by Trump, Ackman

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A bystander who rushed and disarmed one of the Bondi Beach attackers has won praise from leaders around the world, including US President Donald Trump and hedge fund billionaire Bill Ackman, who announced a reward program for community heroes.

Extraordinary footage of the civilian’s actions began circulating on social media on Sunday, shortly after two men, later identified as a father and son, started shooting into a crowd gathered to celebrate the first day of Hanukkah. The massacre has left at least 16 people dead in the worst terrorist attack in Australia’s history. 

Read More: Sixteen People Killed in Bondi Beach Hanukkah Terror Attack 

In the mobile-phone video, which has not been verified by Bloomberg News, one of the attackers is standing near a tree and firing. A few meters away, a crouched man emerges from behind a parked car. He grabs the shooter from behind and wrestles the weapon from his hands. Local media named the bystander as Ahmed el Ahmed, a 43-year-old father-of-two from south Sydney. He was shot twice and is being treated in the hospital, according to reports.

He was also soon lauded for his feat. Trump said at the White House that Ahmed had saved many lives and expressed “great respect” for him. In Sydney, New South Wales Premier Chris Minns went further, describing Ahmed’s wrestle with the shooter as “the most unbelievable scene I’ve ever seen.”

“That man is a genuine hero and I’ve got no doubt there are many, many people alive tonight as a result of his bravery,” Minns said at a press conference late Sunday.

Australian Prime Minister Anthony Albanese also praised Ahmed, and other bystanders who helped treat victims in the immediate aftermath of the shooting. 

“People rushing towards danger to show the best of the Australian character,” Albanese told reporters Monday. “That’s who we are, people who stand up for our values.” 

Pershing Square Capital Management’s founder Ackman called Ahmed  “a brave hero” and said his hedge fund firm would establish a reward program for people who had carried out similar acts.

The top donor to a gofundme page set up for the “hero” who tackled the shooter is listed as William Ackman, who gave $99,999. More than $170,000 has been raised so far. 

Salesforce Inc. Founder and Chief Executive Officer Marc Benioff also expressed his gratitude for Ahmed in a post on X.



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