Artificial Intelligence and Systemic Risk: A Unified Model of Performative Prediction, Algorithmic Herding, and Cognitive Dependency in Financial Markets

1. 1Identify the channels of systemic risk: performative prediction, algorithmic herding, and cognitive dependency
2. 2Derive the equilibrium systemic risk coupling using an extended rational expectations framework
3. 3Analyze the impact of AI adoption share on systemic risk
4. 4Develop strategies to mitigate systemic risk, such as diversification and stress testing

Quantitative analysts, risk managers, and AI researchers on a team can benefit from understanding this model to assess and mitigate potential systemic risks in financial markets

💡 AI adoption in financial markets can generate systemic risk through mutually reinforcing channels

🚨 AI in finance can create systemic risk through performative prediction, herding & cognitive dependency 🚨