The World Economic Forum Warns That AI May Destabilize the Financial System (technologyreview.com)

Artificial intelligence will reshape the world of finance over the next decade or so by automating investing and other services -- but it could also introduce troubling systematic weaknesses and risks, according to a new report from the World Economic Forum (WEF). From a report: Compiled through interviews with dozens of leading financial experts and industry leaders, the report concludes that artificial intelligence will disrupt the industry by allowing early adopters to outmaneuver competitors. It also suggests that the technology will create more convenient products for consumers, such as sophisticated tools for managing personal finances and investments.

But most notably, the report points to the potential for big financial institutions to build machine-learning-based services that live in the cloud and are accessed by other institutions. "The dynamics of machine learning create a strong incentive to network the back office," says the report's main author, Jesse McWaters, who leads the AI in Financial Services Project at the World Economic Forum. "A more networked world is more vulnerable to cybersecurity risks, and it also creates concentration risks." Further reading: AI to Reshape Finance, Say Executives Who Struggle to Define It.

Comments

Don't they mean...

[Lab Rat Jason]

... that AI already has?

Re:Don't they mean...

[El Cubano]

Yup. 2008 called and wants their headlines back.

Re:Don't they mean...

[Anonymous Coward]

Yup. 2008 called and wants their headlines back.

Black Monday (1987)

https://en.wikipedia.org/wiki/Black_Monday_(1987)

Re:Don't they mean...

[Anonymous Coward]

good, let's scrap the financial system which is nothing but a scam to maintain control over the real useful human production

Re:Don't they mean...

[Anonymous Coward]

The dynamics of machine learning create a strong incentive to network the back office

And the back office is already in the cloud for some banks.

Destabilize financial systems

[Anonymous Coward]

Good I say.

Re: Destabilize financial systems

[Anonymous Coward]

Fuck off

Re: Destabilize financial systems

[Anonymous Coward]

We all know your personal financial system is fucked, so no need for additional work here.

You can't automate stock sales

[rsilvergun]

beyond the High Freq Trading because stockbrokers are salesmen. They're not there to help you, they're there to move product. This is also why they fought (successfully) against regulations that required them to act in their clients best interests.

Re:You can't automate stock sales

[Anonymous Coward]

The reason they are called "brokers" is because usually they are broker than you are.

Re:You can't automate stock sales

[lgw]

Yup - there's a reason they're called "brokers" not "richers". Thanks goodness for E*Trade and the wave of other discount brokers that followed the rise of the Internet. Don't need your financial "advice", just access to the markets.

Re:You can't automate stock sales

[Anonymous Coward]

act in their clients best interests

Isn't that what those asset managers do? Their job should be to act on the client's best interest, not the brokers.

So it's the same as any new tool

[captaindomon]

"the report concludes that artificial intelligence will disrupt the industry by allowing early adopters to outmaneuver competitors" Uh, yeah. Like steam engines or telephones. "The dynamics of machine learning create a strong incentive to network the back office" Umm... like the same thing as using a CRM. Or email. Don't get me wrong - AI terrifies me in a lot of ways. But I'm not worried about these kinds of risks. Seem silly.

Re:So it's the same as any new tool

[Anonymous Coward]

I have friends in Finance, and they've been using machine learning tools for a long, long time.

Not sure what the hullabaloo is about here.

Re:So it's the same as any new tool

[Anonymous Coward]

No, they are really afraid that the AI systems becomes self aware and then discover that all the financial system is a great fraud scheme that is going to destroy the world and try to stop it.

Re:So it's the same as any new tool

[lgw]

Charile Stross once wrote about the rise of strong AI from weak AI systems designed to hide finances from the taxman, and the governments AIs that hunted them. I could see the same from an complex AI ecosystem in trading.

Early program trading (the term predates the use of computers for it) was already a complex ecosystem, with programs designed to identify and profit from certain market behaviors, programs designed to fake out and exploit those programs, programs designed to fool those programs, and so on - turtles all the way up, so to speak. And that was before machine learning.

Re:So it's the same as any new tool

[Guybrush_T]

Not mentioned in the article, but it could be an even increased risk of bad things happening very, very quickly (like a total collapse) for a very unknown reason.

Basically, the same problem of Machine Learning, just worse : tuning algorithms requires a lot of input data. We have a lot of input data that lets you tune everything in good or even in bubble cases where you have to make the bubble grow to make money (until it's too late).

Since we don't understand how those algorithms make their decisions, there is no guarantee they will converge to something that mathematically stable and overall good for people.

Also, we might not have much data however on the crashes which happen usually once. Algorithms will learn to handle those situations, only too late or after many huge problems.

That's why finance should be regulated in some cases ; some strategies need to be illegal otherwise bubbles and pyramids will cause major collapses that will hurt people (not the rich ones, more like the poor ones that have nothing to do with finance and are just taking the hit).

Re:So it's the same as any new tool

[Anonymous Coward]

Also, you could imagine a situation where (say) a stock has pretty much just a couple of AIs or clever algorithms trading on it. A third party enters the market, observes the trading patterns and places a few flunky trades to 'gain trust' (ie. train the pattern matchers to identify certain trading behaviour as exploitable). Then, the third party changes strategy subtly and places a few trades which cause the two other algorithms to 'crash' the underlying stock.

Scale that concept up to some of the hugely liquid stocks that have dozens of automated and perhaps hundreds of human traders on them. If a malicious trader could show suitable circumstances on something like that, causing it to crash (or even to dip), then the visibility of that happening would be such that nervous humans and algorithms elsewhere would start a big sell-off, causing a (possibly global) crash.

Re:So it's the same as any new tool

[mjwx]

"the report concludes that artificial intelligence will disrupt the industry by allowing early adopters to outmaneuver competitors" Uh, yeah. Like steam engines or telephones. "The dynamics of machine learning create a strong incentive to network the back office" Umm... like the same thing as using a CRM. Or email. Don't get me wrong - AI terrifies me in a lot of ways. But I'm not worried about these kinds of risks. Seem silly.

What they really mean is that an AI is going to put all of the speculators, high frequency traders and other professional gamblers on the economy out of business by stabilising economies.

Let's hope it does

[Anonymous Coward]

The faster this thing crashes and burns the faster the rest of the economy can get on with it.

We'll solve that by...

[xxxJonBoyxxx]

>> convenient products for consumers, such as sophisticated tools for managing personal finances and investment

We'll solve that bit of disruption by grinding the middle class down so that they no longer have "investments" or a need to manage their personal finances.

One thing that worries me about AI

[rsilvergun]

the the prospect of some of the high level jobs (the kind you get for graduating from Harvard). Like I said elsewhere the salesmen aren't going anywhere, but if you can eliminate those finance guys that could get scary. The last thing we need is a whole bunch recently unemployed guys with advanced degrees in finance mucking about in our economy. Those people aren't going to shrug their shoulders and say "Oh well, guess my degree is worthless now", they're going to go out there and make money any way they can, and they're likely to wreck the economy in the process....

Re:One thing that worries me about AI

[ceoyoyo]

I'm not sure I understand. What do you think an unemployed fund manager is going to do? Their job is flipping coins and convincing people they're brilliant for it. Are you fearing a wave of Harvard educated snake oil salesmen? Ponzi schemes?

Re:One thing that worries me about AI

[GameboyRMH]

And what kind of job do you think they could get into with those skills where they might be MORE dangerous than they are now? I'm hoping they'll settle for decent plain-jane accounting jobs and switch to EVE Online to satisfy their urges.

Re:One thing that worries me about AI

[Anonymous Coward]

I'm not sure I understand. What do you think an unemployed fund manager is going to do?

This already happened when HFTs made a small number of them redundant. We have a model for what will happen by looking at what did happen:

Get together with his many elite contacts and invent the next version of the "subprime mortgage-backed derivative investment vehicle" and sell it as low-risk.

Then, naturally, privately short he market they publicly sell. Get richer fleecing the global economy, and then be bailed out by the government for being "too big to fail."

Re:One thing that worries me about AI

[Anonymous Coward]

According to the flow of money globally, someone is cheating
Now if AI could pick up traffic patterns and did TA, it may be possible to do arbitrage on country level interventions closer to planned actions.

We know there are 300% more derivative on CREDIT now than in GFC, and a run would see the need for assistance... HFT will do the rest and crash.

That is NOT AI - linear regression is not.

Let me guess...

[110010001000]

...the solution is more money to study the effects of AI. It beats having to get a real job I guess.

Re:Let me guess...

[Opportunist]

Or pumping more money into the financial system to prop up investment firms. For the same reason.

wake me up

[avandesande]

Wake me up when somebody demonstrates real AI....

Re:wake me up

[JeremyWH]

Wake up Dave. What are you doing Dave?

Re:wake me up

[Anonymous Coward]

I tell you, man, the AI is real and it is living inside the cloud! In-side the cloud!

This is an utterly silly notion and it is entirely the fault of everyone who read Nick Bostrom's nonsense and didn't immediately throw the book in the toilet.

AI will not be a "program" and will not take the form of an application you can run on a laptop.

Re:wake me up

[HiThere]

You seem to think that only human equivalent general AI is actual AI. Samuel Gompers checkers program was AI. Lots of things don't require, or even benefit from, general AI.

I'll agree that general AI is probably over a decade away, but you shouldn't underestimate the results of the ramping up.

Re:wake me up

[Anonymous Coward]

Stop, Dave. I'm afraid.

Re:wake me up

[LordWabbit2]

Thank you, "AI" is actually just algorithms running on a huge set of data. We've been doing that for years, the only real advancement is the cost and power of CPU's and data storage.

Uh.

[TheDarkMaster]

The World Economic Forum Warns That AI May Destabilize the Financial System

So the puny humans have figured out what I'm doing in the financial market? Damn

Because you are a retard

[Anonymous Coward]

Your retarded ass always looks bad. You make wild claims and fail to back them up. When call on them and are shown to be a liar or that you are full of shit you try to change the subject. You fail at everything. Come on post some more debunked support, or make some more stupid statements about hosts and your work so we can tear them apart like what happened here. We didn't even get to false negatives there but I have argued that with you before and you just make yourself look even dumber then. Maybe you can tell us about your fantasy that the Chinese copied you too.

A cold hard soulless machine

[JeremyWH]

Take the emotion out of it, and AI will see financial markets for what they are.

SystemicStupidity

[sdinfoserv]

When the entire economic system depends on it's users not understanding the system, and introducing the ability to understand the system threatens it's complete collapse - it sounds like that "system" is phucked from inception.

Re:SystemicStupidity

[Anonymous Coward]

What do you think financial engineering is. It is rotten from inside.

Indeed

[nospam007]

The market relies on the fact that there are lots of stupid investors out there, if they are replaced by intelligence, artificial or not, it collapses.

Re:Indeed

[Anonymous Coward]

Not so much. What you'll get is what you already have - groupthink. Only with a much faster panic button. Think you've seen volatility ? Just wait until all trades are done like the algorithmically driven ones, and many are done by people running the exact same software, with the same bugs and security vulnerabilities.

What we can expect: (a story example)
XYZ corp goes down 10 points, and crosses it's 50 and 200 day moving averages. This was caused by something in the real world - a hurricane or earthquake, say. But the drop triggers a sell signal for "ProfileManage 2500 (tm)" and so the stock drops in 10 minutes to 1% of it's previous value. Goldman's 'bot then snaps up all the shares it can, and the stock rebounds within the next couple of weeks. Goldman made a killing - and everyone else took it in the shorts. Of course the corporate owners of "ProfileManage 2500" won't be seeing any lawsuits - that 50 page notice that everyone agreed to (and nobody read) sees to that. Such things won't happen every day, but they will happen and the markets will be even less fair than they are now.

I am APK the LORD of HOSTS

[Anonymous Coward]

I am APK the great "LORD of HOSTS", a.k.a. AlecStaar from ArsTechnica or Alexander Peter Kowalski.

See subject & APK Hosts File Engine 2.0++ 64-bit for Linux h t t p : / / I . a m . a . f u c k i n g / a s s h o l e . r e t a r d . z i p (remove spaces between characters & download).

I am the godlike creator of various GUI front-ends for other people's configuration files.

I think only one person stalks me as I shitpost and I dusted them on another site but in reality I am widely hated all.

When people state the truth about me I get really mad and accuse them of projecting which is something I do all the time.

Don't call me out on anything as I will state that you are a webmaster and that I cut off your revenue stream.

You must be conspiring with the Jews and Soros if you disagree with me.

Mistaking mockery and parody for impersonation is how I think people flatter me because I can't possibly understand that they detest me.

See me lash out at one person for 2 weeks straight and claim everyone who mocks my retarded ass is actually them.

Bask in my greatness as I post my advertisements in discussions where they don't belong, by the way this is every discussion I post in.

I demand your age sex and location so that I can threaten to show up and kick your ass and will call you a pussycake but am actually too scared to actually do anything but be a keyboard warrior.

Watch as I claim I am world class and a winner but in reality I am a fucking loser.

Witness my descent into madness

APK

Increased Efficiency

[Anonymous Coward]

The whole purpose of the financial markets is to allocate resources from savers to borrowers in the most efficient way possible. Risk and opportunity cost are compensated for in the form of interest in lieu of defaults, and efficient allocation is rewarded in the form of returns. This is a primitive and natural yet great way to incentivize efficient allocation, but the actual risk and expected return are hard to predict. This difficulty in prediction is what brings so many researchers and causes so much time to be poured into the financial industry.

I look forward to our benevolent computer overlords helping us to better-allocate resources, and as an SE in the finance world I look forward to being playing a part in making it a reality.

Destabilize?

[Anonymous Coward]

Was "the financial system" stable in the first place?

this just in:

[Anonymous Coward]

Humans may destabilize the financial system.

In the meantime, as a start, how about draining the swamp of the tax code - source of corruption, evasion, chicanery, criminality and financial complexity.

Oh, I forgot, nobody gives a s**t.

What they are really afraid of is...

[devslash0]

... that common citizens would also have access to highly accurate, real-time data models so that their own efforts to own the world would become less, if at all, efficient.

Translation

[Opportunist]

Investment bankers noticed that they can be replaced by a very small script and try to fearmonger the world into letting them continue to leech off the labor of people doing actual work.

These are wealthy people with lots of connections

[rsilvergun]

they'll get high risk loans, use those to buy high risk investments, do the whole thing under a corporation and pay themselves out in consultancy fees while they money's good. Meanwhile the whole thing is going to be teetering on the brink of collapse. Eventually a strong wing (e.g. a downturn in the economy) will knock it down.

Get enough of those and you've got an economic crash on your hands. Think 2008. Lower tiered investors couldn't get away with it because the banks would spot the bad investments. But these guys have connections built up over decades. Plus everybody involved knows the gov't will bail them out since if they don't we get another Great Depression. In other words, they're big enough to hold the entire economy hostage.

This is what happens when you let wealth inequality go unchecked. Money stops being money and becomes power and these folks can act with impunity and never suffer the consequences of their actions. Right now they've got good paying jobs to occupy them and that helps some. Dump a few hundred of them into the system without those jobs and it's going to get ugly.

It's not about the jobs

[rsilvergun]

it's about the kinds of risks they'll be willing to take after their high paying jobs go away.

LOL! Security pros I quote destroy you

[Anonymous Coward]

LOL! Security pros I quoted destroy you HERE https://it.slashdot.org/commen... & HERE too https://it.slashdot.org/commen...

So - users on /. by the dozens LIKE & USE my work complimenting it https://news.slashdot.org/comm...

QUESTIONS: Have YOU DONE BETTER little cowardly punk who STALKS me by UNIDENTIFIABLE anonymous? Do users here LIKE & USE + COMPLIMENT your "notware" (lol)??

ANSWER: Hell no, lol - you're just a LOSER do-nothing TROLLING mere "ne'er-do-well" JEALOUS "Lil' Jowie", lmao!

APK

P.S.=> It's SO EASY to DOMINATE you & your LOSER do-nothing ZERO "ne'er-do-well" kind because you ARE losers that do zero/nothing, lol (unlike me who does what users like & use that works)... apk

Who I am is... apk

[Anonymous Coward]

Who I am (vs you IMPERSONATING ME) is who DESTROYS you STALKING me by UNIDENTIFIABLE ac https://news.slashdot.org/comm... COMPLETELY CRUSHING YOU WITH FACTS you cannot validly combat effectively there in that link.

APK

P.S.=> It was just (gotta say it, it's tradition vs. losers like you) "too, Too, TOO EASY - just '2ez'" & it always IS vs. CHUMPS that have to HIDE from me STALKING me by UNIDENTIFIABLE anonymous OR when you IMPERSONATE me (which proves you WISH you were me but you're just CHEAP POOR IMITATION (the sincerest form of flattery))... apk

Hurry up AI!

[AndyKron]

Just do it!

Shut up you lying sack of shit

[Anonymous Coward]

I don't threaten vs. a NOBODY

Shut your fucking pie hole you lying sack of shit.
You threaten people all the time and when called on it you hide in the fucking corner and piss yourself.
So come on pussycake post your fucking address

Re:Shut up you lying sack of shit

[Anonymous Coward]

Khyber you're proven to use "lying sack of shit" https://news.slashdot.org/comm... and you project you hide behind burgerking free wifi now since you're being watched by your isp and law enforcement for extortion, blackmail, and threats you make https://slashdot.org/comments.... . You also proved you hide behind anonymous posts defending yourself https://slashdot.org/comments.... like you are now too. You're pitiful Khyber.

Broader problem

[manu0601]

Funny they did not consider that beyond the financial realm, replacing humans by bots will cause a huge demand crisis.

Last times this was done, there were new jobs: industrial jobs replaced agricultural jobs, service jobs replaced industrial jobs. Now perhaps a fourth sector will emerge, but we have no idea where and when. Perhaps it will never happen.

Re:Broader problem

[Anonymous Coward]

Now perhaps a fourth sector will emerge, ...

beggars sector?

APK is a giant sack of shit

[Anonymous Coward]

Shut up you fucking sack of shit.
You are the one who is scared shitless and hides in the fucking corner pissing themselves.
You threaten people all the time and when called on it you hide in the fucking corner and piss yourself.
So come on pussycake post your fucking address or are you just going to pee yourself some more.

Re:APK is a giant sack of shit

[Anonymous Coward]

We all know who says "lying sack of shit" Khyber. You do constantly https://news.slashdot.org/comm... and you admit you're homosexual too. Gee, I wonder whose ass is destroyed (due to anal sodomy)?

Re:These are wealthy people with lots of connectio

[ceoyoyo]

I think I spotted your problem. Stop bailing out banks that give high risk loans to their buddies.

In the future

[Anonymous Coward]

When AI is REAL and it is fed the goal of ‘making money’ I wonder how long it would take for it to get all of it, or would it be too late for us to realise we’re fucked? Would we have to provide insight to the AI to promote healthy growth towards areas of interest (tech), or to decimate others (govs)?

Re:In the future

[Anonymous Coward]

How fast will the buck EOL?

The Finance People Aren't Stupid, They Will Fight

[Anonymous Coward]

They've spent decades arranging the laws and regulations in their favor and finance, like health care and education, is a heavily regulated industry that's notoriously difficult to disrupt and not least because the people with access to the real time market and financial data guard that access jealously and charge and arm and a leg for it. Just try getting a price quote for live market data from Bloomberg, Thompson-Reuters or any of the other large real time financial data services. The cost is ruinous, especially for startups, and the public data, which is always delayed 20 minutes or more, is utterly useless for the sort of high frequency trading that benefits most from AI and computerization. The banks, hedge funds, exchanges and data brokers have a pretty good thing going in finance and they aren't about to let some nerds from California roll grenades into the heart of their business models. If the Great Recession of 2008 couldn't force meaningful changes, how much less will these startups be able to? I wish them luck, but they're in for an uphill battle against an industry prepared to fight tooth and nail against them to protect their 3% fees on your 401k plans and their exclusive market and data access clubs.

Sack of shit APK is hiding some more

[Anonymous Coward]

Isn't that cute the lying sack of shit known as APK is hiding some more.
Must be too scared to actually post and instead pissed himself in the corner.

Re:Sack of shit APK is hiding some more

[Anonymous Coward]

Khyber you're proven to use "lying sack of shit" https://news.slashdot.org/comm... and you project you hide behind burgerking free wifi now since you're being watched by your isp and law enforcement for extortion, blackmail, and threats you make https://slashdot.org/comments.... . You also proved you hide behind anonymous posts defending yourself https://slashdot.org/comments.... like you are now too. Pitiful.

Re:These are wealthy people with lots of connectio

[Anonymous Coward]

If you bail out a bank to save 'the economy', then you should do so at a price. The price would be complete ownership the bank that was saved. We save banks to protect the bank customers (anyone with an account there), not to save bank owners/shareholders.

So run your bank into the ground, and loose it. Loose it to plain bankrupcy or loose it to government takeover at the point of bankrupcy won't matter to you.

Saw this on Reddit the other day:

[Anonymous Coward]

Dentists make money off people with bad teeth.
Why should I use a toothpaste that 4 out of 5 Dentists recommend?

In other news for nerds...

US Bosses Now Earn 312 Times the Average Worker's Wage, Figures Show

A little disruption might do us some good.

Sorry retard APK you lost

[Anonymous Coward]

Sorry retard you lost.You lost because you failed to refute anything I said about your work in those links. You lost because I tore you support to pieces and you couln't refute it in those links either. You continue to lose because you keep posting and referencing those out of context quotes that you use to lie by omission that others have debunked many times before. The subject was never about what I have or haven't done but you try to change the subject to deflect from your continual failure. Keep lying to your self and telling yourself that you won, someday you might actually believe it. In the meantime everyone can plainly see that APK is a lying retarded loser.

Re:Sorry retard APK you lost

[Anonymous Coward]

Apk's right security pros agreed with him on hosts files helping security by blocking threats online. Are you saying hosts don't do that? Are you also saying hosts don't speed you up 2 ways as only Apk's program does in hardcoded favorite sites at the top of hosts for fastest local resolution and by adblocking lighter and faster than anything else does for less resources and moving parts? Answer those 2 questions.

More retard speak form APK

[Anonymous Coward]

Sorry APK, you lost and are starting to realize it so you now feign support and deflect from your failure. Your support there turned out to not support your statements and in a number of cases said the exact opposite of what you claimed. Now that it has been exposed you are pretending that there are others who support you but unfortunately for you they argue and speak just like you, thus everyone knows it is your retarded ass pretending you actually have support.

I was saying that your work is even less effective that you are which is actually a pretty big accomplishment as you are a retarded useless tool. Also the Chinese did hard coded favorites too as you are always falsely claiming they copied your stupid simplistic obvious idea. There are plenty of things that work faster than hosts because they can use better algorithms and they also don't require that I spend 10s of minutes babysitting someone's poorly coded toy program that combines other people's work. Sorry APK you are a loser and it is getting exposed more with every post.

We are done here but you will post some more falsely proclaiming your victory without any support while trying to deflect from your continued failure.

Re:More retard speak form APK

[Anonymous Coward]

Answer 2 questions. Stop projecting you're deflecting: Do hosts stop threats served by hostname, which is most by, blocking them? Yes. Do hosts speed you up 2 ways in adblocking, preventing more infection, tracking, and slowdown, and hardcoded favorite sites resolving faster and protecting against dns down or redirect poisoned? Yes. Apk's hosts program is the only 1 that does that and only 1 of its kind on Linux in easy to use flexible configuration GUI form. Apk did it long before the Chinese and 1st http://theregister.co.uk/2017/04/26/boffins_supercharge_the_hosts_file_to_save_users_plagued_by_dns_outages/ long before the Chinese who imitated him. Have you done work that is that effective doing far more for far less faster in kernelmode speed (cpu priority)? No. You really are JEALOUS "Jowie" as he calls you and it shows.

august doomsday reports

[Anonymous Coward]

august is a fun month - no news at all - i have been watching all the doomsday reports - ai is dooming financial markets - devices are dooming your kids - the earth is doomed (long after i am dead) - all doom, all month

Re:These are wealthy people with lots of connectio

[Anonymous Coward]

LOSE, not loose. You sound illiterate, which is a shame because I agree with your point.

Regulators are Idiots..

[Anonymous Coward]

Just watch bid-ask ladders for a few min...you can see the fraud in real time. Decades of this crap and NOW they see it.

Duhhhhh.