Internet Appendix for "AI-Powered Trading, Algorithmic Collusion, and Price Efficiency"

Abstract

This appendix provides supplemental materials for the paper titled "AI-Powered Trading, Algorithmic Collusion, and Price Efficiency" (Dou, Goldstein and Ji, 2024). It provides supplemental material for the simulation results, additional explanations for the model and sketches proofs for the propositions and lemmas, and detailed discussions on the collusion mechanism through self-confirming bias in learning.

Keywords: Reinforcement learning, AI collusion, Homogenization, Experience-based and self-confirming equilibrium, Asymmetric information, Price informativeness, Market liquidity. (JEL Classification: D43, G10, G14, L13)

JEL Classification: D43, G10, G14, L13