Artificial Intelligence and Finance

It's Easy

In an effort to “make finance great again”, I thought about artificial intelligence. I had exposure to AI early. The first Trump administration selected four other people and me to attend the first-ever G7 summit in Torino, Italy, in 2017. Here are four of us, minus my friend and Viking fan Ted Ullyot, with Diego. Diego set the whole thing up and ran the show. It was an honor to be there from the US.

The idea was to get smart people from all over the world in a room and set policy for the future. We could trade ideas, experiences, academic research, and existing ideas about policy. We knew AI, big data, algorithms, and the future of work were going to be affected. The question was, could we figure out how?

It’s awfully hard to see the future. It is also hard to do what they wanted to do on this slide. That’s a different story.

Some things with artificial intelligence are simple. It just takes thinking about things differently. The whole evolution of Clawdbot, or whatever they are calling it now, has been fascinating to watch.

I have some ideas about implementing AI in the Nevada State Treasurer’s office that are simple and easy. They will not only save taxpayers money, but they will also make things a lot more efficient. If they work, huge gains for taxpayers. If they don’t, the taxpayer won’t be hurt, and the expenditure will be minimal.

Often, that can be the great thing about new tech. It doesn’t cost a lot to try it out.

The real key is that you have had to get your hands dirty and mess around with the ideas, concepts, and tools to understand how they can be applied. When I was putting money on the line in early-stage venture investing, we did that. Our fund led pre-seed rounds, writing checks of $500,000 to $750,000.

A lot of people walk around using buzzwords and things you like to hear, but they have absolutely no experience.

When I was on the CME Board, we had real ideas about how electronic trading would evolve. Some ideas we had happened, but a lot of them didn’t. When tech goes from the lab into the wild, it becomes a game-changer, and you cannot anticipate some of those changes.

Here is a funny thing my friends from the algorithmic trading world tell me. AI isn’t a trade execution platform. It is an excellent tool to compile a lot of data and put it in front of your nose so you can synthesize a trading decision. In addition, they will take that analysis and then use what they can to try to create an edge by programming an algorithm. But no, AI can’t buy lows and sell highs any better than anyone else can.

Maybe someday it will evolve into trade execution. But not today.

Here is what I know for certain. There are going to be gigantic changes in micro and macro finance in the next ten years. It will affect the way the entire world interacts with finance. Some of it looks pretty predictable, and other things won’t be anticipated. It’s the way innovation always is. The predictable stuff is table stakes. The person leading has to be able to know the difference between innovation that can benefit people and create real value, versus snake oil.

People with no experience will invariably screw up and buy the snake oil. I have seen it happen time and time again. When it doesn’t work, they will defend the purchase or blame everyone else but themselves. We used to call those people “all hat and no cattle,” and it’s pretty easy to see who they are. Buzzwords, generalities, fast talking, loud talking.

They unveil themselves. It’s funny, yet sad to watch. You almost feel sorry for them. Almost.

Recently, one of the revelations about artificial intelligence came from Marc Andreessen. I saw echoes of it in the Contio presentation the other day. Jobs aren’t actually jobs. They are a series of tasks. What tasks can be commoditized and eliminated by technology so that the employee can expand what they do and possibly create a lot more value than they currently are creating, because they are free to attack those high-value problems due to the tech?

I understand and am empathetic to people who are scared of new technology. But being scared isn’t going to stop it. Better to understand it so you can take advantage of it.