Ex Machina: Financial Stability in the Age of Artificial Intelligence

Kartik Anand, Sophia Kazinnik, Agnese Leonello and Ettore Panetti

No 20681, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Coordination games; Financial stability; Q-learning; Large Language Models; Artificial intelligence; Strategic uncertainty (search for similar items in EconPapers)
JEL-codes: C63 G01 G23 (search for similar items in EconPapers)
Date: 2025-09
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Working Paper: Ex Machina: financial stability in the age of artificial intelligence (2026)
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