tl;dr - Advanced AI making economic decisions in supply chains and markets creates poorly-understood risks, especially by undermining the fundamental concept of individuality of agents. We propose to research these risks by building and simulating models.

For many years, AI has been routinely used for economic decision making. Two major roles it has traditionally played are high frequency trading and algorithmic pricing. Traditionally these are quite simple, at the level of tabular Q-learning agents. Even these comparatively simple algorithms can behave in unexpected ways due to emergent interactions in an economic environment. Probably the most infamous of these events was the flash crash, for which algorithmic high speed trading was a major contributing cause. Much less well known is the subtle issue of implicit collusion in pricing algorithms, which are ubiquitous in several markets such as airline tickets and Amazon: a widely 2020 cited paper found that even very simple tabular Q-learning will converge to prices higher than the Nash equilibrium price - but our research found that this depends sensitively on the exact method of training, and the effect vanishes when the algorithms are trained independenly in simulated markets.

Besides markets, AI is also already used for making decisions in supply chains (see for example [1 2 3 4]), and surely will be moreso in the future. Contemporary supply chains are extraordinarily complex. A typical modern technology product can have hundred of thousands of components sourced from ten thousand suppliers across half a dozen tiers which need to be shipped across the globe to the final assembly. A single five-dollar part can stop an assembly line, which in the case of industries like automotive can cost millions per hour of downtime. The worst type of inventory a company can carry is a 99.9% finished product it cannot sell. Over time, supply chains have been hyper-optimised at the expense of integrity, so that a metaphorical perfect storm in the shape of an Icelandic volcano named Eyjafjallajökull erupting or a container ship named Ever Given getting stuck in the Suez Canal caused massive disruption that inevitably leads to delayed goods, spoiled perishables, lawsuits and contested insurance claims easily in the ten digits. The COVID-19 pandemic was a business school case for all the types of havoc supply chain disruptions can wreak, oscillating wildly from not enough containers to too many containers in port, obstructing the handling of cargo, from COVID-related work shutdowns in China to sudden shifts in consumer behavior in Western countries, leading to layoffs in hospitality industries and labour shortages in production and transportation. Beyond these knock-on effects that can explode planning horizons for procurement and shift the delicate power balance from buyer to supplier, another major problem in supply chain is the knock-off effect: fashion brands and pharmaceutical companies alike fight the problem of counterfeit products being introduced into the supply chain when no one is looking, leading to multi-million dollar losses along with the reputational damage, and, especially in pharmaceuticals, posing a hazard to health and life for many. Supply chain integrity crucially on transparency across a multitude of participants who are typically less than eager to share confidential data.

Moving fowards from these events, the delicate tredeoff between efficiency and integrity is a perfect use-case for the integrated and inter-connected decision-making that is afforded by AI.

This brings us to the issue of economic decisions being deferred to large language models such as GPT4. The well known examples are not “natively economic”, but many people are adapting transformer architectures to operate on various types of data besides linguistic data, and it is only a matter of time before there are “economics LLMs”. In the meantime, GPT is entirely capable of making economic decisions with the right prompting - although virtually nothing is known about its performance on these type of tasks. We do not recommend using GPT to make investment decisions for you, but we expect it to become widespread anyway, if it isn’t already. Similarly, we expect large parts of complex supply chains to be almost entirely deferred to AI, extending the existing automation and its associated benefits and risks.

AI undermines individuality in economics

The traditional (tabular Q-learning) and contemporary (LLMs) situations are very different in many ways, but they have a subtle and crucial point in common. This is that decisions that look independent are secretly connected. There are two ways this could happen: one is that human decision-makers defer to off-the-shelf software that comes from the same upstream supplier - as is the case for algorithmic pricing in the airline industry for example. The other is that there really is a single instance of the AI system in the world and everybody is calling into it - as is the case with GPT.

For off-the-shelf implementations of tabular Q-learning for algorithmic pricing, there is some evidence that having a single upstream supplier has a significant impact on the behaviour of the market, and this is something that regulators are actively investigating. For LLMs virtually nothing is known, but we expect that the situation is worse. At the very least, the situation will certainly be more unpredictable, and we expect the compounding of implicit biases to be worse as these systems become ubiquitous and deeply embedded into decision-making. We plan to research this, by building economic simulations where decisions are made by advanced AIs and studying their behaviour.

A further possibility is more hypothetical, but we expect it to become a reality within the next few years. Right now the technology behind large language models - generative transformers - mainly operates on textual data, but it is actively being adapted for other types of data, and for other tasks besides text generation. Making economic decisions is very similar to playing games, and so there is an obvious analogy to the wildly successful application of deep reinforcement learning to strategically complex game playing tasks such as Go and StarCraft 2 by DeepMind. Combining this with generative transformer architectures could be immensely powerful, and it is not hard to believe such a system could surpass human performance on the task of economic decision-making.

Modelling for harm prevention

Compositional game theory - a technology that we developed and implemented - is currently the state of the art for implementing complex meso-scale microeconomic models. The way things are traditionally done, models are written first in mathematics and are later converted into computational models in general purpose languages (traditionally Fortran, but increasingly in modern languages such as Python), a process that is very slow and very prone to introducing hard-to-detect errors. We use a model is code paradigm, where both the mathematical and computational languages are modified to bring them very close to each other - most commonly we build our models directly in code, with a clean separation of concerns between the economic and computational parts. Our models are not inherently more accurate, but they are 2 orders of magnitude faster and cheaper to build, and this unlocks our secret weapon: rapid prototyping models. By iterating quickly, and continuously obtaining feedback from data and stakeholders, we reach a better model than could be built monolithically.

Why do we want to build these models? The bigger picture is, we want to inform the discussion about regulation of AI. This discussion is already widespread at the highest level of governments around the world, but is currently heavily lacking in evidence one way or the other. There’s a good reason for this: the domain of LLMs is language, and it is extremely difficult to make convincing predictions about the possible harms that can happen mediated by linguistic communication. More restricted domains, such as the behaviours of API bots, are easier to reason about. We have identified the general realm of economic decision-making as a critically under-explored part of the general AI safety question, which our tools are well-placed to explore through modelling and simulations.

Our implementation of compositional game theory allows modularly switching the algorithm that each player uses for making decisions. Normally when doing applied game theory we use a monte carlo optimiser for every player. But we also have a version that calls a Python implementation of Q-learning over a web socket. We could also easily switch it to calls to an open source LLM, or API calls to a GPT API bot or similar.

What’s more, this is emphatically not a mere hack that we bolt on top of game theory. At the core of our whole approach is our discovery, as seen in this paper, that the foundations of compositional game theory and several branches of machine learning are extremely closely related - this foundation is what we call categorical cybernetics. This foundation is what guides us and tells us that what are are doing is really meaningful. More than that, though, it opens a realistic possibility that we can know qualitative things about the behaviour of AIs making economic decisions, a much higher level of confidence than making inferences from simulation results. And when it comes to informing the discussion on regulation when the stakes are as high as they are, more certainty is always better.

What if?

So far we have focussed on the likely negative accidental impacts AI is likely to have on markets and supply chains, where they perform their intended purpose locally but interact in unforeseen ways. This is already concerning, but there is another side to the issue. What if decisions that should be independent are made by a single AI that has “gone rogue”, i.e. has a goal that is not the intended one? Depending on your personal assessment of the likelihood of this situation you could read this section as a fun thought experiment or a warning.

Being handed direct control of markets and supply chains gives perhaps the most powerful leverage over the physical world that an AI could have. Since it can collude with itself, it can easily create behaviours that would never be possible when decisions are made by agents that are independent and at least somewhat rational.

By far the most straightforward outcome of this situation is chaos. Markets and supply chains are so deeply interconnected that it would take very little intentional damage to create a recession deep enough to bring society to its knees. However, by virtually destroying the institutions that it controls this makes it a one-time event, which while extremely bad, would be easily recoverable for humanity as a whole.

Much worse would be the ability of a rogue AI to subtly direct real-world resources towards a secret goal of its own over a long period of time. It isn’t a hypothetical that complex supply chains can easily hide parts of themselves: consider how widespread is modern slavery in the supply chains of consumer electronics, or how the US government secretly procured the resources needed to build the first nuclear weapons at a time when supply chains were much simpler.


It is arguable exactly how extensive are the risks associated to allowing AIs to interact with economic systems, with the scenarios described in the previous section being hypothetical. However, it is undeniable that some serious risks do exist, including already-observed events such as flash crashes and implicit collusion. We have identified that the specific factor of decision-makers using the same upstream provider of decision-making software leads to poorly-understood emergent behaviours of supply chains and markets.

Our theoretical framework, compositional game theory, and our implementation of it, the open game engine, are the perfect tools for building and simulating models of economic situations with AI decision-makers. The goal of creating these models is to produce evidence leading to a better-informed debate on issues around the regulation of AI.