Can ‘artificial intelligence’ boost your finances?

Math whizzes with computers helped cause the financial crisis.

Now, they’re at it again — this time with a better outcome, we hope.

The Wall Street Journal is reporting that more investors are turning to the science of artificial intelligence to make decisions.

With artificial intelligence, the WSJ says, programmers don’t just set up computers to make decisions in response to certain inputs. They try to get the systems to learn from the decisions — and adapt.

Essentially, the computer program analyzes huge chunks of data and makes predictions about the future, the WSJ reports.

Rebellion Research, for example, is a small New York hedge fund that has been using a machine-learning program it developed to invest in stocks. Run by a small team of twenty-something math whizzes, Rebellion has a solid track record, topping the Standard & Poor’s 500-stock index since its 2007 launch, the WSJ says.

“It’s pretty clear that human beings aren’t improving,” Spencer Greenberg, 27-years-old and the brains behind Rebellion’s system, told the WSJ. “But computers and algorithms are only getting faster and more robust.”

The programs are effective, advocates say, because they can crunch huge amounts of data in short periods, “learn” what works, and adjust their strategies on the fly, the WSJ says.

“No human could do this,” Michael Kearns, a computer-science professor at the University of Pennsylvania, told the WSJ. “Your head would blow off.”

What do you think? The wave of the future or something to run away from? Why?

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10 comments Add your comment

Skeptical

July 14th, 2010
8:47 am

I’m not a science fiction nerd, but I know the basics of enough worst-case scenario theories to be a little scared of Artificial Intelligence. Assuming AI continues to build on itself, a point is reached when computers are more intelligent than humans and can make decisions for themselves. The primary function of human nature is to survive and look out for yourself, so who says computers wouldn’t do the same and realize humans were in the way of that survival?

Michael Covington

July 14th, 2010
10:07 am

Artificial intelligence isn’t science fiction; the robots are not going to take over the world. Artificial intelligence is about making software more useful, giving humans smarter tools. I work on computer understanding of human languages, and I have a graduate student working on stock market prediction right now. — Michael Covington, Associate Director, Institute for Artificial Intelligence, The University of Georgia (www.ai.uga.edu).

The Dogfighter Returns

July 14th, 2010
10:54 am

Wall street is the longest running ponzi scheme created by mankind. Regardless of the technique employed investors are bound to lose.

One big pyramid scheme with workers at the bottom providing a cozy life for fund managers and investment bankers at the top.

Sure there are a few who make a windfall, but those examples are critical to keep the ponzi scheme alive.

Would you buy a lotto ticket if you had never heard of anyone winning the lotto? :)

Your odds are better in Vegas than on wall street.

“Buy low sell high” Am I really paying you for such basic advice?

“Don’t sell, it will come back up again” They can’t pick winning stocks yet they tell you it will come back up.

“Dollar cost average” We want you to prop the market at all times so the big boys can clean up. Trust me just keep buying it will come up again.

“Diversify your portfolio” I don’t know what I am doing. If I could pick one stock that I knew would grow I would not be working here. Just buy several and let’s see what happens.

Critic

July 14th, 2010
11:44 am

Dogfighter, you are out of touch with reality. The fact is, stock prices have trended upward as long as there has been a market. Most investors win in the long term.

The Dogfighter Returns

July 14th, 2010
12:08 pm

Critic

July 14th, 2010
11:44 am
Dogfighter, you are out of touch with reality. The fact is, stock prices have trended upward as long as there has been a market. Most investors win in the long term.

—–
There is something called inflation. I don’t know if you have ever heard of this term.

http://home.earthlink.net/~intelligentbear/com-dj-infl.htm

Critic

July 14th, 2010
12:58 pm

Yes, and the stock market has beaten inflation over the long term, as shown by the graph that you cite (even though it uses the author’s own “correction” to the CPI to make things look worse than they really were).

The Dogfighter Returns

July 14th, 2010
2:05 pm

Critic

July 14th, 2010
12:58 pm
Yes, and the stock market has beaten inflation over the long term, as shown by the graph that you cite (even though it uses the author’s own “correction” to the CPI to make things look worse than they really were).

——

In the chart above one truly huge timespan is delineated. It runs from 1950 to 2000. Now please realize that the US stock markets made a major secular bottom in 1949 and a major top in 2000, so out of any times to buy and sell since World War 2 these are the most optimal by far. There are no other two interim extremes that would yield higher gains. In this perfect best-case scenario, the S&P 500 rose by a massive 8801% over a half century!

These are awesome gains, but once again they are nominal, not adjusted for purchasing-power declines. If we take the inflation-adjusted S&P 500 in constant 2005 dollars, the gain is gutted to merely 1111%. Over the past half century from the absolute best-case moments in time to buy and sell for the long term, fully 7/8th of the gains investors could have reaped are illusory. These are wiped out by rising inflation decreasing purchasing power.

http://www.zealllc.com/2005/stockinf.htm

The CPI is intentionally lowballed to understate inflation for political reasons since inflationary expectations are so dangerous for the financial markets. Indeed even Alan Greenspan has said many times that the Fed fears the rise of inflationary expectations even more than inflation itself since the mere expectation of inflation radically alters global capital flows and buying patterns in stocks and bonds.

Critic

July 14th, 2010
2:08 pm

Hmmm. Bernanke argued (in his book, Inflation Targeting) that the CPI reads about 2% high (not low) because it does not adapt to changes in people’s buying habits.

I don’t know why you are trying to tell us that it’s impossible to make money in the stock market. Are you a Marxist? Do you advocate a different way of financing business, rather than investment?

Ponzi

July 14th, 2010
2:20 pm

I think it is a good investment.

robert

July 15th, 2010
9:49 am

Throwing good money after bad: 401ks