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 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 companies using algorithmic pricing come under scrutiny. This month, Instacart, which uses AI-powered pricing tools, announced it will end its program where some customers saw different prices for the same item on the delivery company’s platform. It follows a Consumer Reports analysis found in an experiment that Instacart offered nearly 75% of its grocery items at multiple prices.

“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 published in July 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 in AI pricing tools

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.”

A version of this story was published on Fortune.com on August 1, 2025.

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But for many pet parents, having a dog or cat hasn’t just meant carving out an extra $50-$100 per month just for food and toys. Pet parenting has become more of a lifestyle, with people shelling out hundreds of dollars per month for fresh food—and sometimes thousands for special experiences like a Transatlantic flight or curated vacation.

This is evidence of a shifting consumer attitude around pets, Nicki Baty, chief operating officer of $3.1 billion dog food brand Freshpet, told Fortune. 

“I think it’s kind of gone on steroids, really,” Baty said of the trend of pet parents willing to spend more on their pets. She even said some pet parents value their pets more than other family members. 

“In consumer insights we get, they spend more on their pet, and they value their pet more than their children,” Baty said. “So when you had to rank the order of relationships they have in their family, their dog comes before their partner, their kids, other family members.”

“It’s one of the most constants in life,” she continued. “There’s something, I think, really powerful about that human-animal bond, and especially over the last few years, with everything that played out, with COVID as well.”

How much it costs to have a pet

The average annual cost of raising a human child in the U.S. is nearly $30,000, according to a recent LendingTree study, an eye-popping figure that often dissuades people from extending their families. It’s also approximately equal to the lifetime care costs for a pet.

According to Rover’s 2025 Pet Parenthood report, the average lifetime care for a 10-year-old dog costs about $34,550, and $32,170 for a 16-year-old cat. To be sure, those figures can vary based on breed and health conditions—plus, pet parents should expect to pay much more during a period riddled with inflation and tariffs: They can expect to spend about 11% more for veterinary fees this year, 183% more for pet cleaning supplies, 20% more for grooming supplies, and 85% more for treats and chews, according to Rover. 

That’s also meant the number of households today bringing a pet home has become relatively flat, Baty said, “and that’s a big change from the last few years.”

Even considering how much more expensive it’s become to own a pet, people still want their furry family members to have the best care and conditions, which often starts with food. During the past few years, fresh, raw, or freeze-dried food have become more popular options, marketed as a healthier and more life-sustaining option for pets than traditional kibble. 

Getty Images—Phillip Faraone

Is fresh pet food worth the cost?

While The Farmer’s Dog is one of the preeminent fresh pet food brands, often associated with its curated subscription boxes, Freshpet was actually launched about a decade earlier. Freshpet was founded in 2006 and became the first major player in the fresh dog food space, with millions of pet parents as customers, and is sold at major retailers like Walmart, Petco, and Petsmart.

The company focuses on producing pet food with premium, locally sourced, fresh ingredients that are gently steam cooked instead of baked at high temperatures, like traditional kibble. According to ConsumerAffairs, Freshpet can cost $3-$13 per day for one pet, depending on size, breed, and health needs. Traditional kibble can cost as little as $0.76 per day or as much as about $5 per day, again depending on the dog’s needs, according to Rover.

But as fresh dog food brands tout offering a “longer and healthier lifestyle,” Baty said, pet parents are more willing to spend more to keep their pets happy and healthy. And it’s not just high-income consumers who are willing to spend more. 

“We have a large amount of low income, middle income, and high income [customers],” Baty said. “And the reason goes back to the attitude. The core of it is the attitude you have towards your pet, which is you’re going to make sacrifices or choices.” Meghan Trainor also famously partnered with Freshpet upon the release of her “I’m a Dog Mom” music video, and released an accompanying apparel line.

Getty Images—Phillip Faraone

Baty also argues that feeding fresh food offers better long-term benefits, such as lower vet bills. She said pets who consume fresh food can face fewer health risks down the line, which means less spent on additional medical care.

To be sure, many veterinarians still recommend more traditional kibble brands, with Purina Pro Plan being a popular option. Those foods are still packed full of the nutrients and protein pets need to live a happy and healthy life, and it’s always important to discuss any nutrition plans with a trained veterinarian. Choosing the right pet food has been a long-contested debate in the veterinary world, and it’s often difficult to discern the right choice for your pet.

Some pet parents also opt for feeding fresh food as a “topper” or extra on top of traditional kibble, which can add more health benefits—and excitement around mealtime. 

“Even if you can’t afford to feed it every single meal or always on the main meal, we do have a really large number of consumers that start off mixing,” Baty said: 70% of their revenue comes from 2.2 million households, but there are 14.5 million households that buy Freshpet.

“It’s a place of not wanting to make ourselves inaccessible from either a price-point standpoint, whereby only very wealthy people can afford to pay the main meal fee,” she said. 

And Freshpet has big growth plans: Baty said they believe they can reach 33 million households and invest in new technology and roll out new flavors, textures, proteins, and more treats.

“The nice thing is, we’re only just getting started,” she said. “There’s so much opportunity for us. It’s just a question of what we do first.”