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Incorporating Cognitive Biases into Reinforcement Learning for Financial Decision-Making

Published: January 13, 2026 | arXiv ID: 2601.08247v1

By: Liu He

Potential Business Impact:

Teaches computers to trade like people.

Business Areas:
Machine Learning Artificial Intelligence, Data and Analytics, Software

Financial markets are influenced by human behavior that deviates from rationality due to cognitive biases. Traditional reinforcement learning (RL) models for financial decision-making assume rational agents, potentially overlooking the impact of psychological factors. This study integrates cognitive biases into RL frameworks for financial trading, hypothesizing that such models can exhibit human-like trading behavior and achieve better risk-adjusted returns than standard RL agents. We introduce biases, such as overconfidence and loss aversion, into reward structures and decision-making processes and evaluate their performance in simulated and real-world trading environments. Despite its inconclusive or negative results, this study provides insights into the challenges of incorporating human-like biases into RL, offering valuable lessons for developing robust financial AI systems.

Page Count
15 pages

Category
Computer Science:
Machine Learning (CS)