# Dissecting AI Trading: Behavioral Finance and Market Bubbles

arXiv: https://arxiv.org/abs/2604.18373 · HTML: https://mlsanity.com/paper/2604.18373/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- Builds on 0 of its 23 references that are in the map.
- First posted on arXiv 20 Apr 2026.

## Built on by (most cited first, 1 of 1)

- [Agentic Trading: When LLM Agents Meet Financial Markets](https://mlsanity.com/paper/2605.19337/) (2026)

## Abstract (arXiv)

We study how AI agents form expectations and trade in experimental asset markets. Using a simulated open-call auction populated by autonomous Large Language Model (LLM) agents, we document three main findings. First, AI agents exhibit classic behavioral patterns: a pronounced disposition effect and recency-weighted extrapolative beliefs. Second, these individual-level patterns aggregate into equilibrium dynamics that replicate classic experimental findings (Smith et al., 1988), including the predictive power of excess demand for future prices and the positive relationship between disagreement and trading volume. Third, by analyzing the agents' reasoning text through a twenty-mechanism scoring framework, we show that targeted prompt interventions causally amplify or suppress specific behavioral mechanisms, significantly altering the magnitude of market bubbles.