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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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4 times in 7 seconds: Trump calls Somali immigrants ‘garbage’

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He said it four times in seven seconds: Somali immigrants in the United States are “garbage.”

It was no mistake. In fact, President Donald Trump’s rhetorical attacks on immigrants have been building since he said Mexico was sending “rapists” across the border during his presidential campaign announcement a decade ago. He’s also echoed rhetoric once used by Adolf Hitler and called the 54 nations of Africa “s—-hole countries.” But with one flourish closing a two-hour Cabinet meeting Tuesday, Trump amped up his anti-immigrant rhetoric even further and ditched any claim that his administration was only seeking to remove people in the U.S. illegally.

“We don’t want ‘em in our country,” Trump said five times of the nation’s 260,000 people of Somali descent. “Let ’em go back to where they came from and fix it.” The assembled Cabinet members cheered and applauded. Vice President JD Vance could be seen pumping a fist. Defense Secretary Pete Hegseth, sitting to the president’s immediate left, told Trump on-camera, “Well said.”

The two-minute finale offered a riveting display in a nation that prides itself as being founded and enriched by immigrants, alongside an ugly history of enslaving millions of them and limiting who can come in. Trump’s U.S. Immigration and Customs Enforcement raids and deportations have reignited an age-old debate — and widened the nation’s divisions — over who can be an American, with Trump telling tens of thousands of American citizens, among others, that he doesn’t want them by virtue of their family origin.

“What he has done is brought this type of language more into the everyday conversation, more into the main,” said Carl Bon Tempo, a State University of New York at Albany history professor. “He’s, in a way, legitimated this type of language that, for many Americans for a long time, was seen as outside the bounds.”

A question that cuts to the core of American identity

Some Americans have long felt that people from certain parts of the world can never really blend in. That outsider-averse sentiment has manifested during difficult periods, such as anti-Chinese fear-mongering in the late 19th century and the imprisonment of some 120,000 Japanese Americans during World War II.

Trump, reelected with more than 77 million votes last year, has launched a whole-of-government drive to limit immigration. His order to end birthright citizenship — declaring that children born to parents who are in the United States illegally or temporarily are not American citizens despite the 14th Amendment — is being considered by the Supreme Court. He has largely frozen the country’s asylum system and drastically reduced the number of refugees it is allowed to admit. And his administration this week halted immigration applications for migrants from 19 travel-ban nations.

Immigration remains a signature issue for Trump, and he has slightly higher marks on it than on his overall job approval. According to a November AP-NORC poll, roughly 4 in 10 adults — 42% — approved of how the president is handling the issue, down from about half who approved in March. And Trump has pushed his agenda with near-daily crackdowns. On Wednesday, federal agents launched an immigration sweep in New Orleans,

There are some clues that Trump uses stronger anti-immigration rhetoric than many members of his own party. A study of 200,000 speeches in Congress and 5,000 presidential communications related to immigration between 1880 and 2020 found that the “most influential” words on the subject were terms like “enforce,” “terrorism” and “policy” from 1973 through Trump’s first presidential term.

The authors wrote in the Proceedings of the National Academy of Sciences that Trump is “the first president in modern American history to express sentiment toward immigration that is more negative than the average member of his own party.” And that was before he called thousands of Somalis in the U.S. “garbage.”

The U.S. president, embattled over other developments during the Cabinet meeting and discussions between Russian President Vladimir Putin and U.S. envoys, opted for harsh talk in his jam-packed closing.

Somali Americans, he said, “come from hell” and “contribute nothing.” They do “nothing but bitch” and “their country stinks.” Then Trump turned to a familiar target. Rep. Ilhan Omar, D-Minn., an outspoken and frequent Trump critic, “is garbage,” he said. “Her friends are garbage.”

His remarks on Somalia drew shock and condemnation from Minneapolis to Mogadishu.

“My view of the U.S. and living there has changed dramatically. I never thought a president, especially in his second term, would speak so harshly,” Ibrahim Hassan Hajji, a resident of Somalia’s capital city, told The Associated Press. “Because of this, I have no plans to travel to the U.S.”

Omar called Trump’s “obsession” with her and Somali-Americans “creepy and unhealthy.”

“We are not, and I am not, someone to be intimidated,” she said, “and we are not gonna be scapegoated.”

Trump’s influence on these issues is potent

But from the highest pulpit in the world’s biggest economy, Trump has had an undeniable influence on how people regard immigrants.

“Trump specializes in pushing the boundaries of what others have done before,” said César Cuauhtémoc García Hernández, a civil rights law professor at Ohio State University. “He is far from the first politician to embrace race-baiting xenophobia. But as president of the United States, he has more impact than most.” Domestically, Trump has “remarkable loyalty” among Republicans, he added. “Internationally, he embodies an aspiration for like-minded politicians and intellectuals.”

In Britain, attitudes toward migrants have hardened in the decade since Brexit, a vote driven in part by hostility toward immigrants from Eastern Europe. Nigel Farage, leader of the hard-right Reform U.K. party, has called unauthorized migration an “invasion” and warned of looming civil disorder.

France’s Marine Le Pen and her father built their political empire on anti-immigrant language decades before Trump entered politics. But the National Rally party has softened its rhetoric to win broader support. Le Pen often casts the issue as an administrative or policy matter.

In fact, what Trump said about people from Somalia would likely be illegal in France if uttered by anyone other than a head of state, because public insults based on a group’s national origin, ethnicity, race or religion are illegal under the country’s hate speech laws. But French law grants heads of state immunity.

One lawyer expressed concerns that Trump’s words will encourage other heads of state to use similar hate speech targeting people as groups.

“Comments saying that a population stinks — coming from a foreign head of state, a top world military and economic power — that’s never happened before,” said Paris lawyer Arié Alimi, who has worked on hate speech cases. “So here we are really crossing a very, very, very important threshold in terms of expressing racist … comments.”

But the “America first” president said he isn’t worried about others think of his increasingly polarizing rhetoric on immigration.

“I hear somebody say, ‘Oh, that’s not politically correct,’” Trump said, winding up his summation Tuesday. “I don’t care. I don’t want them.”

___

Contributing to this report are Associated Press writers Will Weissert and Linley Sanders in Washington, John Leicester in Paris, Jill Lawless in London, Evelyne Musambi in Nairobi, Kenya, and Omar Faruk in Mogadishu.



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Nearly three-quarters of Trump voters think the cost of living is bad or the worst ever

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President Donald Trump and his administration insist that costs are coming down, but voters are skeptical, including those who put him back in the White House.

Despite Republicans getting hammered on affordability in off-year elections last month, Trump continues to downplay the issue, contrasting with his message while campaigning last year.

“The word affordability is a con job by the Democrats,” Trump said during a Cabinet meeting on Tuesday. “The word affordability is a Democrat scam.”

But a new Politico poll found that 37% of Americans who voted for him in 2024 believe the cost of living is the worst they can ever remember, and 34% say it’s bad but can think of other times when it was worse.

The White House has said Trump inherited an inflationary economy from President Joe Biden and point to certain essentials that have come down since Trump began his second term, such as gasoline prices.

The poll shows that 57% of Trump voters say Biden still bears full or almost full responsibility for today’s economy. But 25% blame Trump completely or almost completely.

That’s as the annual rate of consumer inflation has steadily picked up since Trump launched his global trade war in April, and grocery prices have gained 1.4% between January and September.

Meanwhile, Vice President JD Vance pleaded for “patience” on the economy last month as Americans want to see prices decline, not just grow at a slower pace.

Even a marginal erosion in Trump’s electoral coalition could tip the scales in next year’s midterm elections, when the president will not be on the ballot to draw supporters.

A soft spot could be Republicans who don’t identify as “MAGA.” Among those particular voters, 29% said Trump has had a chance to change things in the economy but hasn’t taken it versus 11% of MAGA voters who said that.

Across all voters, 45% named groceries as the most challenging things to afford, followed by housing (38%) and health care (34%), according to the Politico poll.

The poll comes as wealthier households are having trouble affording basics, while discount retailers like Walmart and even Dollar Tree are seeing more higher-income customers.

And in a viral Substack post last month, Michael Green, chief strategist and portfolio manager for Simplify Asset Management, argued that the real poverty line should be around $140,000.

“If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at $140,000,” he wrote. “What does that tell you about the $31,200 line we still use? It tells you we are measuring starvation.”



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Apple is experiencing its biggest leadership shakeup since Steve Jobs died, with over half a dozen key executives headed for the exits

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Apple is currently undergoing the most extensive executive overhaul in recent history, with a wave of senior leadership departures that marks the company’s most significant management realignment since its visionary co-founder and CEO Steve Jobs died in 2011. The leadership exodus spans critical divisions from artificial intelligence to design, legal affairs, environmental policy, and operations, which will have major repercussions for Apple’s direction for the foreseeable future.

On Thursday, Apple announced Lisa Jackson, its VP of environment, policy, and social initiatives, as well as Kate Adams, the company’s general counsel, will both retire in 2026. Adams has been Apple’s chief legal officer since 2017, and Jackson joined Apple in 2013. Adams will step down late next year, while Jackson will leave next month.

Jackson and Adams join a growing list of top executives who have either left or announced their exits this year. AI chief John Giannandrea announced his retirement earlier this month, and its design lead Alan Dye, who took charge of Apple’s all-important user interface design after Jony Ive left the company in 2019, was just poached by Mark Zuckerberg’s Meta this week.​

The scope of the turnover is unprecedented in the Tim Cook era. In July, Jeff Williams, Apple’s COO who was long thought to succeed Cook as CEO, decided to retire after 27 years with the company. One month later, Apple’s CFO Luca Maestri also decided to step back from his role. And the design division, which just lost Dye, also lost Billy Sorrentino, a senior design director, who left for Meta with Dye. Things have been particularly turbulent for Apple’s AI team, though: Ruoming Pang, who headed its AI Foundation Models Team, left for Meta in July and took about 100 engineers with him. Ke Yang, who led AI-driven web search for Siri, and Jian Zhang, Apple’s AI robotics lead, also both left for Meta.

Succession talks heat up

While all of these departures are a big deal for Apple, the timing may not be a coincidence. Both Bloomberg and the Financial Times have reported on Apple ramping up its succession plan efforts in preparation for Cook, who has led the company since 2011, to retire in 2026. Cook turned 65 in November and has grown Apple’s market cap from about $350 billion to a whopping $4 trillion under his tenure. Bloomberg reports John Ternus has emerged as the leading internal candidate to replace him.​

Apple choosing Ternus would be a pretty major departure from what’s worked for Apple during the past decade, which has been letting someone with an operational background and a strong grasp of the global supply chain lead the company. Ternus, meanwhile, is focused on hardware development, specifically for the iPhone, iPad, Mac, and Apple Watch. But it’s that technical expertise that’s made him an attractive candidate, especially as much of the recent criticism about Apple has revolved around the company entering new product categories (Vision Pro, but also the ill-fated Apple Car), as well as its struggling AI efforts.​

Now, of course, with so many executives leaving Apple, succession plans extend beyond the CEO role. Apple this week announced it’s bringing in Jennifer Newstead, who currently works as Meta’s chief legal officer, to replace Adams as the company’s general counsel starting March 1, 2026. Newstead is expected to handle both legal and government affairs, which is essentially a consolidation of responsibilities among Apple’s leadership team, merging Adams’ and Jacksons’ roles into one.​

Alan Dye, meanwhile, will be replaced by Stephen Lemay, a move that’s reportedly being celebrated within Apple and its design team in particular. John Gruber, who’s reported on Apple for decades and has deep ties within the company, wrote a pretty scathing critique about Dye, but in that same breath said employees are borderline “giddy” about Lemay—who has worked on every major Apple interface design since 1999, including the very first iPhone—taking over.

Meanwhile, on the AI team, John Giannandrea will be replaced by Amar Subramanya, who led AI strategy and development efforts at Google for about 16 years before a brief stint at Microsoft.

Hitting the reset button

All of the above departures cover critical functions for Apple: AI competitiveness, design innovation, regulatory navigation, and operational efficiency. Each replacement brings specialized expertise that aligns with the challenges Cook’s successor will inherit.

The real test will be execution across multiple fronts simultaneously. Can Subramanya accelerate Apple’s AI development to match competitive threats? Will Lemay’s design leadership maintain Apple’s interface advantages as AI reshapes user interaction? Can Newstead navigate regulatory challenges while preserving Apple’s privacy-first approach?

What’s certain is the company will look fundamentally different in 2026—and the executive team that grew Apple into a $4 trillion behemoth is departing. The transformation could be as profound as any since Jobs handed the reins to his COO at the time, Tim Cook, 14 years ago.



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