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We study how experience with asset price bubbles changes the tradingstrategies of reinforcement learning (RL) traders and ask whether the change intrading strategies helps to prevent future bubbles. We train the RL traders ina multi-agent market simulation platform, ABIDES, and compare the strategies oftraders trained with and without bubble experience. We find that RL traderswithout bubble experience behave like short-term momentum traders, whereastraders with bubble experience behave like value traders. Therefore, RL traderswithout bubble experience amplify bubbles, whereas RL traders with bubbleexperience tend to suppress and sometimes prevent them. This finding suggeststhat learning from experience is a mechanism for a boom and bust cycle wherethe experience of a collapsing bubble makes future bubbles less likely for aperiod of time until the memory fades and bubbles become more likely to formagain.

Once Burned, Twice Shy? The Effect of Stock Market Bubbles on Traders that Learn by Experience