Sunday, July 22

Brookings Institution: how financial AI is deployed now, and where it could go

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AI is not a futuristic vision, but rather something that is here today and being integrated with and deployed into a variety of sectors including finance, according to a research report by Brookings Institution.

Investments in financial AI in the United States tripled between 2013 and 2014 to a total of $12.2 billion, the most recent year for which Brookings had data.

That’s expected to grow substantially, though the Institution does not make any specific forecasts, said Darrell West, vice president and director of governance studies and director of the Center for Technology Innovation at Brookings.

Next-gen tech

The report made note of developments in quantum computers.

“Powered in some places by advanced computing, these tools have much greater capacities for storing information because of their emphasis not on a zero or a one, but on ‘quantum bits’ that can store multiple values in each location,” according to the report.


Read MarketBrains on quantum technologies and AI in finance


Such developments are in the experimental stage but emerging in the near future, noted West, speaking to MarketBrains.

“Any of the firms that are using supercomputers, those are the ones where this is going to roll out because that’s where the experimentation is taking place,” he said.

“Some of the tech companies are claiming that they’ve made excellent progress here, of course, that’s hard to evaluate their claims, but they think we’re getting close to actually being able to this.”

That’s true not just for data storage, but also for processing speed, which is what enables some of the new applications, he added.

Financial AI now

Specific to artificial intelligence in financial applications, the report points out several areas of impact.

Observers were cited as saying that “decisions about loans are now being made by software that can take into account a variety of finely parsed data about a borrower, rather than just a credit score and a background check.”

In stock exchanges, high-frequency trading by machines has replaced much of human decisionmaking. And when it comes to fraud detection, AI can identify abnormalities, outliers, or deviant cases requiring additional investigation.

First we take advisors, then we take PMs

West is the author of The future of work: robots, AI, and automationin which he reviewed public opinion data.

People are “petrified” that robots and AI are going to take their jobs, he said, adding that Pew Center Research showed that some 65% of Americans believe that in 50 years robots will do much of the work done by humans.

Where that seems to be happening now in the financial sector is with robo-advisors.


Read MarketBrains on robo-advisors and AI in ETFs


“In terms of providing financial advice, as it turns out, computers are better than many humans because they’re more rational and less emotional in how they assess returns,” said West.

So if it’s investment advisors today, will it be portfolio managers tomorrow?

“In my book, I quote some financial experts who say that job change is already starting to happen, and it’s going to accelerate in the next few years,” said West. “There’s going to be substantial workforce impact in that area.”




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