REVIEW TITLE:
Artificial Stupidity; The new Artificial Intelligence and the future of Fintech
INSTRUCTOR:
Andrew W Lo. Professor of Finance at MIT Sloan
SPONSOR:
Simon Institute for the theory of computing
Video link:
https://m.youtube.com/watch?v=zqw1nmJ7XZM
LOCATION:
David browser center, 2150 Allston way, Berkeley
TIME:
December 3, 2019, 06:00PM–07:30PM
ABSTRACT:
In this review the writer checks and present the evaluative validity and practical application of a public lecture give by Andrew W Lo. The approach for this review is a narrative essay and as not in anyway altered the original lecture.
INTRODUCTION:
The public lecture delivered by Andrew W Lo sets the foundation of my knowledge in the awareness of the importance of Artificial Intelligence in Finance (Fintech). I was informed of the lecture six (6) days before the lecture by a senior colleague who registered for Simon Institute’ conference (which later turn out to be a lecture) and been an optimistic young economics undergraduate, I had to watch the video on YouTube which was released days after the event. The lecture is knowledge filled and a eyes opener to how New AI will influence the Financial Industry in the next few decades. In the following paragraph I will highlight important points stated by Andrew W Lo
Andrew W Lo is the Charles E. and Susan T. Harris professor of Finance at the MIT Sloan School of Management. He is the author of many academic articles in finance and financial economics.
Question of the day
How artificial intelligence as really changed the way we think about financial technology and what that implies to the future.
To start with Andrew W Lo gave a graph representing population growth from 10,000BC to 2019AD which is exponential due to a number of changes, one of which is changes in technology. Starting from stone age to bronze age to iron age to industrial age and finally to digital age. Between 1900 to 2019 human population had tripled. Artificial Intelligence as great impact on the following areas in Financial Technology
1) Electronic payments system
2) Automated and algorithmic trading
3) Cryptocurrency
4) Block chain technology
5) Smart contract
6) Predictive analytics for consumer behavior
7) Robo Advisory …
He further explain using the following theories
1) Financial Moore’s law
2) The opportunity precision index
In this aspect Andrew W Lo stressed that he published a book “Personal Index” in 2001 which predict that Artificial Intelligence will take dominance of indexes and portfolio management at least in the next one decade. But this prediction as not come to fulfilment because of the following claim.
i) Artificial humanity: we have all the sort of psychological, physiological, economical, political rules and understanding about human behavior (i.e human intelligence) yet we do not have a algorithmic representation of all this rules (i.e artificial humanity). What we know is “how people should behave” which is human intelligence instead of “how people do behave algorithmically” which is artificial humanity.
ii) what we need is an algorithms that studies human behaviors through various inputs (Human Intelligence) so that we can balance our least productive actions and get maximum outputs/results
3) Theory of Economic Behavior
4) Games Theory (greatly improved by Venominom Morganstine)
5) Expected Utility Theory by Paul .A. Samuelson and Venominom Morganstine: This theory later became the “Economic theory of all behavior”
6) Concept of Homoeconomicus i.e Economic Humans
7) Sharpe Ratio
8) Theory of Actual Behavior “SATISFICING” / Bounded Rationality by Simon.A.Herbert: The notion of SATISFICING is an alternative to Expected Utility Theory
9) “The freak out factor” or “Panic sale” financial behavior
10) Difference between Old Artificial Intelligence and New Artificial Intelligence
Old Artificial Intelligence
Homoeconomicus
Narrative and Objective
Limited and expensive storage
Coding and algorithms was critical and sophisticated
New Artificial Intelligence
Facts
Algorithms and coding is simple
Data and storage is complex
Conclusion
It is obvious that artificial intelligence is something everyone one should embrace in the field of finance but the following points listed below are my fears for AI
1) Artificial Intelligence my be manipulated by individuals and governments to obtain self results
2) Artificial Intelligence may not obey the Isaac Asimov 3 laws of Robotics
3) Countries with little or no artificial intelligence may lack behind (underdeveloped countries)
4) AI might not be able to obtain the right algorithms for tasks that are subjective
5) Artificial Intelligence uses heuristics which sometimes is not suitable for some task
6) There is need for more research study on human limitations and cognitive model.
It is my hope that this review helps and expose finance enthusiasts and professionals to how greatly Artificial Intelligence would improve finance in the closest future.
REFERENCE
Artificial Stupidity: The New AI and the Future of Fintech
https://m.youtube.com/watch?v=zqw1nmJ7XZM