Ex Machina: financial stability in the age of artificial intelligence

Kartik Anand, Agnese Leonello, Ettore Panetti and Sophia Kazinnik

No 3225, Working Paper Series from European Central Bank

Abstract: Does artificial intelligence (AI) pose a threat to financial stability? We study AI investor behavior, specifically Q-learning and large language model (LLM) investors, in a mutual fund redemption problem with economic and strategic uncertainty. Different AI architectures generate systematically different outcomes. Q-learning investors coordinate well but under default risk exhibit excessive redemption that amplifies fragility. LLM investors internalize equilibrium structure but display belief heterogeneity, weakening coordination and predictability. Our findings show that AI architecture is a first-order determinant of financial stability. JEL Classification: G01, G23, C63

Keywords: AI agents; coordination games; financial stability; large language models; Q-learning; strategic uncertainty (search for similar items in EconPapers)
Date: 2026-05
Note: 2292323
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