The Fear of Artificial Intelligence in Dystopia

Artificial intelligence is a contemporary innovation in the world of computer science; however, as the finance sector becomes more and more algorithmic, AI may be influenced in trading real securities. According to Joshua Gans (the chair in technical innovation and entrepreneurship at the Rotman School of Management), big investment banks including JP Morgan, Goldman Sachs, Morgan Stanley, etc. are already trying to get their hands on the technology. While the development of AI is likely to be seen in the finance sector, experts are debating on whether the ramifications would be positive.

Why Artificial Intelligence?

Often, when one hears about AI they link the concept with some sort of distorted dystopia in a sci-fi flick. However, the reality is that machine learning is already on its way to be implemented on Wall Street. AI is like the perfect algorithm because not only does it try to follow market patterns, but it is incessantly learning and adapting in order to be more accurate. AI does this through a process known Machine Adaptive Learning – MAL for short (Munro). This is done with two machines: a learner and a judge. The judge tests the learner on a given subject. Humans give the judge the answers to the questions. The learner takes the tests and self-edits its algorithm to become more precise. After a plethora of data is consumed, the learner can now answer the given test perfectly and can quickly adapt when confronted with outliers. In terms of trading, the judge would be given the years and years of stock trends over the years for commodities, bonds, shares, and other securities. The learner then would ideally be able to predict extremely accurately what trend would likely continue in the future.

How Could This Help the Economy?

Assuming Dr. Gans’ prediction is correct, AI would be able to use MAL to asses a current state of the S&P 500, Dow Jones, NASDAQ, or any given security in these and predict its future state. This would initially store an unprecedented confidence within investors. More and more people would be investing their money within the stock market and other mediums with the aid of AI. This could ideally help increase the discretionary income made by the average household. This would, in result, increase sales by businesses and boost the economy. Increase sales would call incentive for new industry and further innovation. Yes, AI might be taking jobs from financial analysts, but it could possibly compensate tenfold by spawning entirely new opportunities. Additionally, with the excess consumer spending, government revenue would increase too. AI could generate financial capital for municipal funds coming full circle. There is a large chain of effects that could certainly occur if AI is used in proprietary trading. It is very possible AI will be a positive tool that could provide the ultimate monetary policy by stabilizing our economy into a less cyclic state.

How Could This Hurt the Economy?

Elon Musk, CEO of Tesla and SpaceX, has a different opinion on the outcome of the use of AI. In a 2017 article in the Hive, Musk describes that AI has a singularity: an unknown that can’t be known until observed. He later elaborates that AI would have the ability to innovate itself incredibly fast and there would be no controlling what it could/would do. As for its specific role in trading, this still holds water. Musk is very weary, however, in giving such an unpredictable entity omnipotence over all the security exchanges done across the world (Musk). That is a big job, and if one entity is doing that job, who will keep check? Even if you consider this doomsday prophecy to be fugazi, AI would certainly make proprietary trading more quantitatively based. Instead of looking at the managerial positions or assets and liabilities of a company, AI would associate companies with simple numbers in an algorithm – most likely their IPO’s and current value. This could hurt the domestic economy because there would be a poor allocation of financial capital. Rather than investing the money in companies likely to succeed, AI would simply be playing a game of the market disregarding the ramifications of their investments. Finally, error and fraudulence would increase as does with any innovations. Again, such control and power of money would incentivize fraudulence that could hinder investor’s confidence. This would decrease discretionary income and consumer spending. It could also be possible that AI would make a mistake and be tricked to invest money in a company that was tailored to its algorithm. There is also a plethora of vulnerabilities with this power.

Humanity’s Fate

Although many of these theories are speculative, many experts don’t see AI being independent from humanity in the future, especially for jobs on Wall Street. As Dr. Jones says in his article, Can AI be Independent from Humans, he illustrates that human judgement will forever be necessary in trading. “There is so much phycology and bluffing and non-tangible cues that a computer would never be equipped to handle. Not everything follows an exact pattern.” There is no doubt that AI will impact how we trade and how we view economic success, but humanity will still have a say in what happens. The doomsday prophecies are far unlikely and it is much more probable that this is an incredible innovation that will affect our economy in similar way as the industrial revolution. Time will certainly tell what artificial intelligence has in store for us as we see it being implemented more and more every day. Maybe in a couple decades, your quarterly dividends will be due to a hard working robot after all.

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