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Don't Let Your Robots Grow Up to Be Traders: Artificial Intelligence, Human Intelligence, and Asset-Market Bubbles

33 Pages Posted: 23 Jul 2003  

Ross M. Miller

Miller Risk Advisors; SUNY at Albany - School of Business

Abstract

Researchers who have examined markets populated by robot traders have claimed that the high level of allocative efficiency observed in experimental markets is driven largely by the intelligence implicit in the rules of the market. Furthermore, they view the ability of agents (artificial or human) to process information and make rational decisions as unnecessary for the efficient operation of markets. This paper presents a new series of market experiments that show that markets populated with standard robot traders are no longer efficient if time is a meaningful element, as it is in all asset markets. While simple two-season markets with human subjects reliably converge to an efficient equilibrium, markets with minimally intelligent robot traders fail to attain this equilibrium. Instead, these markets overshoot the equilibrium and then crash below it. In addition to firmly establishing the role of trader intelligence in asset-market equilibrium, these experiments also provide insights into why bubbles and crashes are consistently observed in many asset-market laboratory experiments using human subjects.

Keywords: market bubbles, intertemporal competitive equilibrium, experimental markets, trading agents

JEL Classification: C90, C92, D82, D84, G12

Suggested Citation

Miller, Ross M., Don't Let Your Robots Grow Up to Be Traders: Artificial Intelligence, Human Intelligence, and Asset-Market Bubbles. Journal of Economic Behavior and Organization, Forthcoming. Available at SSRN: https://ssrn.com/abstract=415220 or http://dx.doi.org/10.2139/ssrn.415220

Ross M. Miller (Contact Author)

Miller Risk Advisors ( email )

2255 Algonquin Road
Niskayuna, NY 12309-4711
United States
518-346-0781 (Phone)

HOME PAGE: http://www.millerrisk.com

SUNY at Albany - School of Business

1400 Washington Ave.
Albany, NY 12222
United States

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