AI ‘Trading Bots’ & The Transformative Potential In Investing

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The surge of AI in investing has prompted discussions around the transformative impact of AI-powered trading bots on the world of finance. While online searches for “AI investing” yield numerous offers claiming lucrative returns, caution is advised due to potential risks, as emphasized by reputable financial firms, says an article published on bbc website.

Summary

  • A 2023 survey revealed that nearly one in three investors in the US would consider entrusting all investment decisions to trading bots.
  • AI, whether weak or generative, cannot predict unforeseen events. Generative AI, a more powerful form, relies on initial data and programming, making it susceptible to errors if fed flawed data.
  • Generative AI may face challenges if initially provided with biased or inaccurate data. It is also prone to biases, inaccuracies, and hallucinations.
  • Despite the risks, a significant number of investors express interest in AI-driven decisions. Some investors trust computers more than humans, believing in the objectivity, logic, and measured decision-making capabilities of AI.

Investor Enthusiasm And Caution

A 2023 survey in the US revealed that nearly one in three investors would consider entrusting all investment decisions to trading bots. However, industry experts, including John Allan, head of innovation and operations for the UK’s Investment Association, urge caution. Allan emphasizes the seriousness of investment decisions and suggests waiting for AI to prove itself over the long term. He underscores the ongoing role of human investment professionals in the industry.

AI Limitations And Uncertainties

Despite the hype surrounding AI, certain limitations and uncertainties persist. AI, whether weak or generative, cannot predict unforeseen events like 9/11, the 2007-2008 credit crisis, or the coronavirus pandemic. Generative AI, a more powerful form, relies on initial data and programming, making it susceptible to errors if fed flawed data.

Risks Of Generative AI

Generative AI, capable of creating new solutions and learning from them, may face challenges if initially provided with biased or inaccurate data. Examples from other industries, such as Amazon’s flawed recruitment AI, highlight the potential pitfalls. Generative AI is also prone to biases, inaccuracies, and hallucinations, according to experts like Prof Sandra Wachter from Oxford University.

Why The Interest Despite Risks?

Despite the risks, a significant number of investors express interest in AI-driven decisions. Business psychologist Stuart Duff suggests that some investors trust computers more than humans, believing in the objectivity, logic, and measured decision-making capabilities of AI. However, Duff cautions that AI may still reflect the biases and errors of its developers and lacks the intuitive experience and rapid reaction of humans in the face of unprecedented events.

The enthusiasm for AI in investing coexists with caution, acknowledging both the potential benefits and the need for ongoing scrutiny and oversight in the ever-evolving landscape of AI-powered financial decisions.

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Source: bbc

 

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