The Massive Economic Benefit of A.I. that No One Talks About
Humans are bad at predictions. We’re emotional, we have biases, and we often shortchange research and analytics to go with our ‘gut feeling’ instead. There’s an old saying in economics, coined by former Federal Reserve Chairman Alan Greenspan, that the Federal Reserve has “accurately predicted nine of the last five recessions.”
Predictions are not our strong suit, yet business and investment decision-making often rely heavily on them. A CEO’s forecast for sales in a given quarter can impact everything from inventory to new hires, to the earnings forecasts made by analysts on Wall Street. For investors, our decision on how to invest, what types of securities to purchase, and how to allocate our portfolio – all of these decisions rely in great part on our predictions for what will happen in the future.
In short, in business and investment, we place a lot of emphasis on our ability to predict the future, which ultimately means we critically rely on one of our greatest weaknesses.
A.I.’s Economic Benefit: Lower the Cost – and Boost the Accuracy – of Prediction
Professor Ajay Agrawal, who teaches at the University of Toronto’s Rotman School of Management and founded a company called the Creative Destruction Lab, argues that A.I.’s single most transformative and important economic function is its ability to lower the cost of prediction.
Here’s an example Professor Agrawal offers to provide context. Consider Amazon’s recommendation engine, which in and of itself is a prediction application of A.I. Professor Agrawal’s team found Amazon’s tool to be about 5% accurate, meaning that out of every 20 items it recommends you buy, you buy one of them but not the other 19. While that sounds like a pretty low level of accuracy, one must also consider that Amazon picked those 20 items out of the millions upon millions of items in its vast catalog. On that basis, the tool is pretty darned good.
Every day, engineers and data scientists in Amazon’s machine-learning group are working to get those numbers higher, better. As the prediction tool becomes more accurate, perhaps we’ll end up buying 3 or 4 of the items in the recommended list of 20, increasing the economic value of the A.I. and also the revenue and profit model of the business.
The same logic and value-add apply to the investment world. Humans all too often let our emotions and biases play an outsized role in our forecasts for the markets, and that in turn affects our investment decision-making. Artificial Intelligence can remove the emotion completely from the equation, and it can also process more data in seconds than a human could in a year. With research, analytics, back-testing, and statistics, the A.I. can make a market prediction based on data. Humans simply cannot compete.
If You’re Wondering When A.I. Will Start Making Market Predictions…
Guess what – it already is. Hedge funds and large institutional investors have been using Artificial Intelligence to analyze large data sets for investment opportunities, and they have also unleashed A.I. on charts to discover patterns and trends. Not only can the A.I. scan thousands of individual securities and cryptocurrencies for patterns and trends, and it generates trade ideas based on what it finds. Hedge funds have had a leg-up on the retail investor for some time now.
Not anymore. Tickeron has launched a new investment platform, and it is designed to give retail investors access to sophisticated AI for a multitude of functions:
- Finding stock patterns in the market
- Finding trends in the stock market
- Testing portfolios to see if they are well-diversified
- Back-testing statistics to see how different stock patterns generated trading results
- Making Predictions for price movements in the future, with “A.I. Rank” and level of confidence in the trade.
And much more. No longer is AI just confined to the biggest hedge funds in the world. It can now be accessed by everyday investors. Learn how on Tickeron.com.
