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TraderTalk: An LLM Behavioural ABM applied to Simulating Human Bilateral Trading Interactions

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  • Alicia Vidler
  • Toby Walsh

Abstract

We introduce a novel hybrid approach that augments Agent-Based Models (ABMs) with behaviors generated by Large Language Models (LLMs) to simulate human trading interactions. We call our model TraderTalk. Leveraging LLMs trained on extensive human-authored text, we capture detailed and nuanced representations of bilateral conversations in financial trading. Applying this Generative Agent-Based Model (GABM) to government bond markets, we replicate trading decisions between two stylised virtual humans. Our method addresses both structural challenges, such as coordinating turn-taking between realistic LLM-based agents, and design challenges, including the interpretation of LLM outputs by the agent model. By exploring prompt design opportunistically rather than systematically, we enhance the realism of agent interactions without exhaustive overfitting or model reliance. Our approach successfully replicates trade-to-order volume ratios observed in related asset markets, demonstrating the potential of LLM-augmented ABMs in financial simulations

Suggested Citation

  • Alicia Vidler & Toby Walsh, 2024. "TraderTalk: An LLM Behavioural ABM applied to Simulating Human Bilateral Trading Interactions," Papers 2410.21280, arXiv.org.
  • Handle: RePEc:arx:papers:2410.21280
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    References listed on IDEAS

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    1. Alicia Vidler & Toby Walsh, 2024. "Modelling Opaque Bilateral Market Dynamics in Financial Trading: Insights from a Multi-Agent Simulation Study," Papers 2405.02849, arXiv.org.
    2. Paulin, James & Calinescu, Anisoara & Wooldridge, Michael, 2019. "Understanding flash crash contagion and systemic risk: A micro–macro agent-based approach," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 200-229.
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    4. Pinter, Gabor, 2023. "An anatomy of the 2022 gilt market crisis," Bank of England working papers 1019, Bank of England.
    5. Jon Cheshire, 2015. "Market Making in Bond Markets," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 63-74, March.
    6. Viktoria Dalko & Michael H Wang, 2018. "How Effective are the Order-to-Trade Ratio and Resting Time Regulations?," Journal of Financial Regulation, Oxford University Press, vol. 4(2), pages 321-325.
    7. Peter Bossaerts & Paolo Ghirardato & Serena Guarnaschelli & William R. Zame, 2010. "Ambiguity in Asset Markets: Theory and Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1325-1359, April.
    8. Andrei Kirilenko & Albert S. Kyle & Mehrdad Samadi & Tugkan Tuzun, 2017. "The Flash Crash: High-Frequency Trading in an Electronic Market," Journal of Finance, American Finance Association, vol. 72(3), pages 967-998, June.
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