Are Large Language Models Rational Investors?

Large Language Models (LLMs) are progressively being adopted in financial analysis to harness their extensive knowledge base for interpreting complex market data and trends. However, their application in the financial domain is challenged by intrinsic biases (i.e., risk-preference bias) and a superficial grasp of market intricacies, underscoring the need for a thorough assessment of their financial insight. This study introduces a novel framework, Financial Bias Indicators (FBI), to critically evaluate the financial rationality of LLMs, focusing on their ability to discern and navigate the subtleties of financial information and to identify any irrational biases that might skew market analysis. Our research adopts an innovative methodology to measure financial rationality, integrating principles of behavioral finance to scrutinize the biases and decision-making patterns of LLMs. We conduct a comprehensive evaluation of 19 leading LLMs, considering factors such as model scale, training datasets, input strategies, etc. The findings reveal varying degrees of financial irrationality among the models, influenced by their design and training. Models trained specifically on financial datasets might exhibit greater irrationality, and it's possible that even larger financial language models (FinLLMs) could display more biases than smaller, more generalized models. This outcomes provide profound insights into how these elements affect the financial rationality of LLMs, indicating that targeted training and structured input methods could improve model performance. This work enriches our understanding of LLMs' strengths and weaknesses in financial applications, laying the groundwork for the development of more dependable and rational financial analysis tools.