Agentic Finance: An Adaptive Inference Framework for Bounded-Rational Investing Agents
Journal
Entropy
ISSN
1099-4300
Publisher
MDPI AG
Date Issued
2026
Author(s)
Montañez Jacquez, Samuel
Clippinger, John H.
Moroney, Matthew
Type
text::journal::journal article
Abstract
We propose Adaptive Inference, a portfolio management framework extending Active Inference to non-stationary financial environments. The framework integrates inference, control, and execution under endogenous uncertainty, modeling investment decisions as coupled dynamics of belief updating, preference encoding, and action selection rather than optimization over fixed objectives. In this approach, portfolio behavior is governed by the expected free energy (EFE) minimization, showing that classical valuation models emerge as limiting cases when epistemic components vanish. Using train–test evaluation on the ARKK Innovation ETF (2015–2025), we identify a Passivity Paradox: frozen belief transfer outperforms naive adaptive learning. A Professional Agent achieves a Sharpe ratio of 0.39 while its adaptive counterpart degrades to −0.28, reflecting belief contamination when learning from policy-dependent signals. Crucially, the architecture is not designed to generate alpha but to perform endogenous risk management that mitigates overtrading under regime ambiguity and distributional shift. Adaptive Inference Agents maintain long exposure most of the time while tactically reducing positions during high-entropy periods, implementing uncertainty-aware passive investing. All agents reduce realized volatility relative to ARKK Buy-and-Hold (43.0% annualized). Cross-asset validation on the S&P 500 ETF (SPY) shows that inference-guided risk shaping achieves a positive Entropic Sharpe Ratio (ESR), defined as excess return per unit of informational work, thereby quantifying the economic value of information under thermodynamic constraints on inference. ©The authors ©MDPI.
License
Acceso Abierto
How to cite
Montañez Jacquez, S., Clippinger, J. H., & Moroney, M. (2026). Agentic Finance: An Adaptive Inference Framework for Bounded-Rational Investing Agents. Entropy, 28(3), 321. https://doi.org/10.3390/e28030321