Technology is changing society, creating a more interconnected world while disrupting corporate business models, career paths and financial markets. Robots are replacing manufacturing workers, electronic monitoring systems collect tolls, and self-checkout systems are the new sales clerks in retail stores.
The pervasiveness of technology contributes to a growing fascination with artificial intelligence in popular culture.
The portrayal of AI in the HBO series “Westworld” and 2015 movie “Ex Machina” is chilling. Each story includes compelling female characters who outsmart male protagonists. The twist is that Maeve and Ava aren’t people, they’re robots equipped with artificial intelligence! It’s not easy to determine that Maeve and Ava are robots, and in certain respects they demonstrate “superiority” to the humans in each story.
The promise of AI excites some, but the implied threat represented by AI creates anxiety.
Are humans obsolete? Robots are increasingly used as replacements for humans. A 2015 McKinsey study estimated that 45 percent of job activities could be automated through robots or other machines, and robots have taken over automobile production lines in Detroit and throughout the rest of the developed world.
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Fans of technology as well as skeptics wonder how close the world is to the reality shown in “Westworld” and “Ex Machina.” A visit to a hotel at Los Angeles International Airport may provide a clue.
Among the “workers” is Wally the Butler, a three-foot robot on rollers with blinking bluish eyes. Wally was ubiquitous, seen delivering toothpaste and extra facecloths to a guest’s room, offering to get coffee, and saying goodbye to departing guests.
How close are we to the day in which humans and robots are indistinguishable from one another? Not very, according to experts in neurology and professionals working in practical application of AI. The ultimate goal for a specific AI application is to replicate the thinking pattern of a sensitive human expert in a selected domain.
Computers have been used for decades to increase automation tasks and efficiency. Until early in this decade, AI programming was mostly driven by rules-based (i.e., “if-then”) tools of logic and programming language. But as AI enters the real-time mainstream, humans and machines are expected to collaborate in new ways, on ever-more sophisticated assignments. Such inferential reasoning electronic machines will be able to take on more complex tasks entirely on their own, particularly when repetitive routines are the mode.
However, human behavior is highly variable, depending on the individual’s psychological profile and the circumstances of a particular incident. Further complicating the problem is that the classical economic model of “rational expectations,” in which individuals always optimize personal financial resources, is flawed. Occurrences that are rare in nature or diverge from prior history also present challenges to today’s AI.
Neurologists are just beginning to understand the brain’s physiology, and geneticists have only relatively recently successfully mapped the complete human genome. Until science unlocks the secrets of how to account for, and remove (or include), emotional impulses in the human mental process equation, computer scientists will continue to have difficulty devising processing logic that learns from its own experience the way individuals do. The era of “super intelligence” in which human cognition, true wisdom and machine behavior are identical, remains well off into the future.
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Investment and financial planning implications. Artificial intelligence is already in wide use within the investment industry. Advances in computing power make it possible for machine-based systems to answer quantifiable questions faster than a human and to analyze multiple dimensions of a bounded problem. Computers have replaced humans on trading floors and algorithms are increasingly used by investment managers to identify securities to buy and sell.
Despite the undeniable impact of AI on investments, human design remains the driving force. Algorithms are informed by technology, but designed by humans. Algorithms are less effective when outcomes are uncertain and subject to a high degree of randomness. Investor sentiment (emotions), government policy (political compromise), geopolitics (conflict and diplomacy), and “luck” (weather and other random influences) play a significant part in explaining investment performance.
Also, in many cases, decisions must be made in a context of unexpected developments, infrequent in nature and with limited historical data. Consequently, AI may not ever be a replacement for judgment of a Warren Buffett, George Soros or Janet Yellen. Nor can an AI inspire a team to excel, coach a nervous client about to make a bad decision, or connect the dots when sentiments are not clearly expressed by clients or colleagues.
In the financial planning realm, robo-advisors such as Betterment and Wealthfront have received hundreds of millions in venture capital funding to provide low-cost financial advice. AI, low-cost investment options and easy-to-use on-line interfaces make robo-advice an attractive service for many consumers.
However, human advice is critical for more complex planning needs. Human advisors spend much of their time helping clients balance between multiple, often-conflicting goals that have financial elements as well as emotional elements. The emotional element is much harder to codify and capture for AI than the financial element, and typically requires trust, non-verbal insight and intuition to navigate. Current forms of AI are not yet equipped to incorporate the “human” element, making it unlikely that Wally the Butler will replace financial planners who advise clients who have complex financial considerations.
The real challenge that AI poses for the investment and personal financial advisory profession is not so much whether AI-based platforms will replace in-person rendered advice, but more importantly, can financial professionals learn to work with it in a complementary fashion, as the science evolves, thereby offering clients the best of both worlds.
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Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward-looking statements (including words such as believe, estimate, anticipate, may, will, should and expect). Although TFC Financial Management believes that the beliefs and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such beliefs and expectations will prove to be correct. Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. The author’s clients may or may not hold the securities discussed in their portfolios. The author makes no representations that any of the securities discussed have been or will be profitable.
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