// GLOSSARY -- AGENTIC AI

What is Reinforcement Learning?

1 min read Updated

Reinforcement Learning (RL) is a machine learning paradigm where an agent learns optimal behavior through trial and error, receiving rewards or penalties for actions taken in an environment.

WHY IT MATTERS

RL is how you teach systems to make sequential decisions. The agent takes actions in an environment, observes results, and receives a reward signal. Over many iterations, it learns which actions maximize cumulative reward — without being explicitly told what to do.

RL powers game-playing AI (AlphaGo, OpenAI Five), robotics, recommendation systems, and importantly, the RLHF process that aligns language models with human preferences.

For financial agents, RL is conceptually relevant: trading and portfolio management are sequential decision problems where you optimize cumulative returns. However, pure RL for live financial trading faces challenges with non-stationarity, sample efficiency, and catastrophic risk.

FREQUENTLY ASKED QUESTIONS

How is RL used in LLMs?
RLHF (Reinforcement Learning from Human Feedback) uses RL to align model outputs with human preferences. The model is fine-tuned to maximize a reward model trained on human comparison data.
Can RL be used for trading?
Yes, but with significant challenges. Financial markets are non-stationary, data is limited, and exploration (trying random actions) can be costly. Most successful quant systems use RL in combination with other methods.
What's the difference between RL and supervised learning?
Supervised learning maps inputs to correct outputs. RL discovers optimal behavior through interaction — there's no 'correct answer,' just rewards and penalties for different action sequences.

FURTHER READING

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