Training Language Models for Bilateral Trade with Private Information

Bilateral bargaining under incomplete information provides a controlled testbed for evaluating large language model (LLM) agent capabilities. Bilateral trade demands individual rationality, strategic surplus maximization, and cooperation to realize gains from trade. We develop a structured bargaining environment in which LLMs negotiate via tool calls within an event-driven simulator, separating binding offers from natural-language messages to enable automated evaluation. The environment serves two purposes: as a benchmark for frontier models and as a training environment for open-weight models via reinforcement learning. In benchmark experiments, a round-robin tournament among five frontier models (15,000 negotiations) reveals that effective strategies implement price discrimination through sequential offers. Aggressive anchoring, calibrated concession, and temporal patience are associated with both the highest surplus share and the highest deal rate. Accommodating strategies that concede quickly disable price discrimination in the buyer role, yielding the lowest surplus capture and deal completion. Strategically competent models scale their behavior proportionally to item value, maintaining consistent performance across price tiers; weaker models perform well only when wide zones of possible agreement compensate for suboptimal strategies. In training experiments, we fine-tune Qwen3 (8B, 14B) via supervised fine-tuning (SFT) followed by Group Relative Policy Optimization (GRPO) against a fixed frontier opponent. The two stages optimize competing objectives: SFT approximately doubles surplus share but reduces deal rates, while RL recovers deal rates but erodes surplus gains—a tension traceable to the reward structure. SFT also compresses surplus variation across price tiers, and this compression generalizes to opponents unseen during training, suggesting that behavioral cloning instills proportional strategies rather than memorized price points

Lessons Learned: Ignazio Visco

Ignazio Visco served as deputy director general (the equivalent of deputy governor) of the Bank of Italy during the Global Financial Crisis of 2007–09 (GFC) and as governor during the European Sovereign Debt Crisis in 2011 (SDC). During his multidecade tenure at the bank, he held several positions and served under nine prime ministers before stepping down in 2023. Although Italy had the third-largest economy in the eurozone, its banking sector had little exposure to mortgages, which resulted in its being somewhat less impacted by the GFC than other countries. However, the SDC had a severe impact. With the assistance of European Union (EU) programs, the country was able to recapitalize and stabilize its banks, but its economy continued to falter through the decade, and the nation was one of the first in Europe to be impacted by the COVID-19 pandemic. This Lessons Learned summary is based on an interview held in January 2024

Capital Flows and the Global Collateral Cycle

Cross-country disparities in collateral technologies alone can account for large capital flows among mature economies, and allow the most advanced country to run a permanent trade deficit. When the collateral technology advantage is in creating negative beta (super safe) financial assets backed by positive beta assets, a Global Collateral Cycle emerges, with pro-cyclical gross and net flows and increased global asset price volatility. The supply of super safe assets is necessarily curtailed in downturns, providing a complementary (supply) channel to the flight to safety (demand) channel for explaining why US safe asset prices rise during crises

The Trade-off between Quality and Quantity: Evidence from a Field Experiment on Tutoring

High-dosage tutoring has the potential to substantially raise adolescent academic achievement, but schools may lack the resources to deliver small-group tutoring frequently at scale. This paper studies the relative importance of tutoring group size (quality) versus tutoring frequency (quantity) using a randomized controlled trial in a Midwestern U.S. charter middle school. Students were randomized to a control group, tutoring twice a week in 2-student groups, or tutoring three times a week in 3-student groups, with equal total cost per student across the two treatment arms. The results show that tutoring in 2-student groups led to a statistically significant improvement in math skills of 0.23 standard deviations, while the more frequent 3-student group tutoring did not produce significant gains. The findings suggest that, under budget constraints, smaller group size may be more effective than higher frequency

Pricing and Production Without The Invisible Hand

Modern theories of the business cycle do not allow for the simultaneous rational choice of both prices and quantities, instead assuming that an “invisible hand” determines one of these variables to clear markets. In this paper, we develop a macroeconomic framework in which both prices and quantities are chosen directly by firms, and exchange is both voluntary and efficient. Because of uncertainty about demand and productivity, individual product markets can be in excess supply or rationed. The absence of market-clearing changes pricing and production in qualitatively important ways: markups are no longer determined solely by the elasticity of demand, and higher uncertainty reduces production and increases markups. In equilibrium, production in rationed markets has a negative aggregate demand externality on demand in slack markets. Differently from New Keynesian economies, monetary shocks propagate by reducing economic slack, raising aggregate labor productivity and consumption, while uncertainty shocks act as stagflationary cost-push shocks. We integrate our theory of disequilibrium in a dynamic, rational-expectations “New Old Keynesian Model” and demonstrate its implications for the business cycle

Black Swans and Financial Stability: A Framework for Building Resilience

This article refines the concept of black swans, typically described as highly unlikely and catastrophic events, to be internally consistent. It explores features of the financial system that prevent the eradication of black swans. The main implication is the need to enhance the financial system’s resilience to withstand unforeseen events rather than focus on past crises. The article introduces a “resilience principle” for designing official-sector policies that can achieve such goals. The principle calls for policies that are adaptable, universal, and systemic. The article provides examples of policies with these features, assuming that the official sector is not better positioned than the private sector to anticipate the unknown

Early Childcare Attendance and Cognitive skills in Adolescence

This paper examines the impact of early childcare on academic achievement for children in grade 5 and grade 9, based on a 2003 policy expansion that created quasi-random variation in slot availability for children aged 1–2. Starting childcare one year earlier increases math scores by 9.7% of a standard deviation (SD) in grade 9. Children whose mothers do not hold a high school diploma benefit by a significant 0.28% of a SD at grade 9, reducing the math achievement gap from children of higher-educated mothers by about one third. We also present evidence of strong improvements for children of immigrants

AI and the Ethos of Education: Reflections on Human Learning Past and Present

This thesis reflects on contemporary issues of “Artificial Intelligence” (AI), while also bringing into conversation 12th century Christian mystic and polymath Hildegard Von Bingen and 18th century Humanist philosopher Giambattista Vico. Hildegard’s and Vico’s contexts philosophically and historically share similarities to our present moment: reassessing our humanity and learning in times of technological, economic, and social shifts. Holding up their writing to various conversations about our contemporary world helps illuminate the present. Key aspects of the discussion include what constitutes tools or technologies, the agency we have in choosing to use or not to use them, and how we make those choices; how human achievements and creations have always been the result of human intelligence; the importance of mental discipline and control over one’s thinking in an attention economy; the social natures of learning and knowledge-creation; learning as and for self-knowledge; knowledge as creation, and creativity as an exercise in judgment and decision-making

How the FDIC Sourced Crisis-Time Fed Funding through the Failed Banks of 2023

During the Banking Crisis of 2023, the Federal Deposit Insurance Corporation (FDIC) had to contend with the liquidity demands of the second-, third-, and fourth-largest bank failures in US history, all in a compressed timeframe. Facing uncertainty over its liquidity needs, particularly if additional banks were to fail, and optics and political challenges over accessing its standing credit lines with the Treasury—which itself was brushing against the federal debt ceiling—the FDIC relied on two creative forms of financing itself. First, the agency kept open the Federal Reserve (Fed) loans taken on by the failed banks, eschewing its standard practice of immediately paying down the Fed loans of banks in receivership. The FDIC kept these loans despite selling the underlying collateral that the failed banks had posted to the Fed; it accomplished this by replacing the collateral at the Fed with FDIC corporate guarantees. Second, the FDIC used the failed banks’ FDIC-run bridge banks to obtain new and, in one case, uncollateralized loans from the Fed—again securing the Fed with an FDIC guarantee that the loans would be paid back. In taking these steps, the FDIC implemented a novel mechanism to supplement its liquidity in crises, notwithstanding the other potential motivations for making expansive use of this funding strategy and the legal uncertainties around it. However, the costs and risks of supplementing the FDIC’s crisis-time liquidity this way must also be considered

Archives and Children\u27s Knowledge

This article argues for the importance of collecting works created by children—not just about and not just for—in formal archival collections. Framed through the ideas of legitimate knowledge and epistemic injustice, this piece combines notions important to children’s rights activists and childhood studies scholars with the role archives can play in preserving children’s knowledge through child-created materials. The authors describe how researchers struggle to find work created by children within archives, impacting the ability to create child-centered research that centers children’s views of the world as prominently as adult views of the world. Some collections that do include child-created materials are used as examples of how this kind of archival collecting can be done, and in what various formats children’s knowledge can come