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

Posted by msmash on from the something-to-think-about dept.

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.

30 of 83 comments (clear)

  1. Don't they mean... by Lab+Rat+Jason · · Score: 4, Insightful

    ... that AI already has?

    --
    Which has more power: the hammer, or the anvil?
    1. Re:Don't they mean... by El+Cubano · · Score: 4, Funny

      Yup. 2008 called and wants their headlines back.

  2. Destabilize financial systems by Anonymous Coward · · Score: 1

    Good I say.

  3. You can't automate stock sales by rsilvergun · · Score: 2

    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.

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    1. Re:You can't automate stock sales by lgw · · Score: 1

      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.

      --
      Socialism: a lie told by totalitarians and believed by fools.
  4. So it's the same as any new tool by captaindomon · · Score: 3, Interesting

    "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.

    --
    Just because I can hook a shark from a boat, I do no offer to wrestle it in the water.
    1. Re:So it's the same as any new tool by Anonymous Coward · · Score: 1

      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.

    2. Re:So it's the same as any new tool by lgw · · Score: 2

      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.

      --
      Socialism: a lie told by totalitarians and believed by fools.
    3. Re:So it's the same as any new tool by Guybrush_T · · Score: 2

      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).

    4. Re:So it's the same as any new tool by mjwx · · Score: 1

      "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.

      --
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  5. One thing that worries me about AI by rsilvergun · · Score: 2

    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....

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    1. Re:One thing that worries me about AI by ceoyoyo · · Score: 4, Insightful

      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?

    2. Re:One thing that worries me about AI by GameboyRMH · · Score: 1

      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.

      --
      "When information is power, privacy is freedom" - Jah-Wren Ryel
  6. Let me guess... by 110010001000 · · Score: 1

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

    1. Re:Let me guess... by Opportunist · · Score: 1

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

      --
      We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
  7. wake me up by avandesande · · Score: 5, Insightful

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

    --
    love is just extroverted narcissism
    1. Re:wake me up by JeremyWH · · Score: 1

      Wake up Dave. What are you doing Dave?

    2. Re:wake me up by HiThere · · Score: 1

      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.

      --

      I think we've pushed this "anyone can grow up to be president" thing too far.
    3. Re:wake me up by LordWabbit2 · · Score: 1

      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.

      --
      There are three kinds of falsehood: the first is a 'fib,' the second is a downright lie, and the third is statistics.
  8. Uh. by TheDarkMaster · · Score: 1

    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

    --
    Religion: The greatest weapon of mass destruction of all time
  9. A cold hard soulless machine by JeremyWH · · Score: 1

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

  10. SystemicStupidity by sdinfoserv · · Score: 2

    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.

  11. Indeed by nospam007 · · Score: 1

    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.

  12. What they are really afraid of is... by devslash0 · · Score: 1

    ... 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.

  13. Translation by Opportunist · · Score: 2

    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.

    --
    We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
  14. These are wealthy people with lots of connections by rsilvergun · · Score: 1

    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.

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  15. It's not about the jobs by rsilvergun · · Score: 1

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

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  16. Hurry up AI! by AndyKron · · Score: 1

    Just do it!

  17. Broader problem by manu0601 · · Score: 1

    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.

  18. Re:These are wealthy people with lots of connectio by ceoyoyo · · Score: 1

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