Man vs. Machine: The Rise of AI Investing

Google’s AlphaGo artificial intelligence (AI) program hit headlines this week after defeating Go world champion, Lee Se-dol twice.

Se-dol said after the second defeat: “I am quite speechless… I feel like AlphaGo played a nearly perfect game.”

It’s clear that we are entering new territory here, with machines rapidly becoming more intelligent and, in some cases, even beating their human creators.

In the 1970s, AI underwent a period known as the ‘AI Winter’ after millions was spent on investing in AI, but there was not a lot to show for it. Funding was quickly pulled and eventually people lost interest in the concept.

By 1997, IBM had created a super-computer, known as ‘Deep Blue’, which defeated renowned champion Garry Kasparov at Chess. Many hail this moment as the birth of AI, with the machine being able to think strategically and beat a human at the game.

There is an important point to Lee Se-dol’s defeat this week, computers are learning, getting faster at what they can do and improving where humans appear to have reached their limits. Human beings simply cannot keep up with the pace of AI.

Technology plays a crucial role in the financial world today, and companies are looking to integrate AI abilities into trading and investing.

Algorithmic trading, the most widely used form of AI in the financial industry, uses complex and advanced mathematical models to make transaction decisions on behalf of humans.

Rules built into this model attempt to determine the optimal time to trade, with the least repercussions on stock prices.

Advances in technology means implementing systems like this is cheaper than ever and funding in research is increasing interest in the subject of AI.

With AI machines possessing capabilities to evolve, adapt and search for patterns, asset managers can use them to enhance investments.

So is AI better at trading than humans?

Yes – but this doesn’t necessarily mean there will no longer be a place for human traders, investors or asset managers.

We will undoubtedly see further AI implementation across the financial spectrum, but surely harnessing the powers of both humans and AI will be the future.

It’s a new world we are entering, and we aren’t fully aware of the repercussions of creating such intelligent machinery.

Though it might also be wise to be cautious. Professor Stephen Hawking said the following about AI in 2014: “Success in creating artificial intelligence would be the biggest event in human history. Unfortunately, it might also be the last.”


By Hayley McDowell