Homepage Stocks Simulation Articles Testimonials Disclosure Contact
A Marriage in Artificial Intelligence
A common assumption is that people can make better decisions with more information. The logical extension is that people will make even better decisions with even more information. Hence, you find content-drenched websites such as TheStreet.com, cnbc.com, cbsmarketwatch.com and so many more. Add to these all the subscription based investing magazines and newsletters that are available and can there be any doubt about the thirst for limitless information?
But, do people really make better choices with more information, or can a task become too complex and, by its very complexity, undermine the decision making process?
Among economists, it is an axiom that choice is good and more choice is better. Giving buyers more choice means more -- and more intense -- competition, which lowers prices, raises quality and fosters innovation. In the end, workers are more productive, consumers are better off and the economy is bigger and more efficient.
It's a lovely theory, and one that is particularly attractive to conservatives, who use it to justify replacing government services -- Medicare, Social Security, public housing, public schools -- with market-based solutions.
Unfortunately, it turns out not to be true. Yes, up to a point, choice does enhance efficiency and consumer welfare. But at some point, there get to be so many options about what to buy or what career to go into or which mutual fund to invest in that many people make worse decisions than they would if they had fewer choices¡¡¡¡¡...
Washington Post, September 10, 2004
People can only process a finite amount of information at any moment in time. Once exceeded, these limitations give rise to information overload. Numerous studies have shown that as a decision maker is initially given information, decision quality improves. However, once the information level reaches a certain point (saturation), the decision making quality actually begins to deteriorate. At some point, people become overloaded with information and make worse decisions. Their cognitive capabilities become strained and overload sets in.
Admittedly, one would believe that your investment decisions should depend upon as large a body of expertise and information as possible. But so much information truly can¡¯t all be processed effectively and that births the problems of information overload and results in inferior decisions.
Widespread acceptance of this fact is responsible for the huge swell of interest in the use of Artificial Intelligence in the investment arena.
Artificial Intelligence (AI) is the use of computer algorithms, models and systems to emulate human perception, cognition, and reasoning. In the broadest sense, it is the range of technologies that allow computer systems to perform complex functions mirroring the workings of the human mind.
This technology is not plagued by the limitations and restraints previously mentioned.
On the contrary, Artificial Intelligence thrives on input. Since computer programs are not heir to the human frailties of bias, variability, neglect of important data and emotion, the accuracy of their conclusions can be far superior to that of humans.
¡°If ever there were a field in which machine intelligence seemed destined to replace human brainpower, the stock market would have to be it. Investing is the ultimate numbers game, after all, and when it comes to crunching numbers, silicon beats gray matter every time.¡±
The February 13, 2004 edition of CNN Business 2.0
If further proof were required for the efficacy of the field of Artificial Intelligence, the same article goes on to say:
¡°Andre Archambault, for example, manages Standard & Poor's Neural Fair Value 20, an AI-enhanced model portfolio¡¡¡¡¡¡¡ Since adding AI in 2000, Archambault's portfolio has increased in value by 55 percent, while the S&P 500 has declined 26 percent.¡±
Today, artificial intelligence based decision systems are being used by Citibank, Credit Suisse, Standard & Poors, Nikko Securities, Nomura Securities, Morgan Stanley, Bear Stearns, Shearson Lehman Hutton and many others.
In April, the Wall Street Journal reported:
¡°Mutual-fund companies increasingly are rolling out new funds that dispense with hands-on fund managers and instead rely on computers to select stocks. While so-called quantitative funds have been around for years, they are multiplying now as fund companies seek to boost performance while at the same time cutting costs. Quant funds, as they are commonly known, offer fund companies the chance to outpace market indexes without paying an experienced stock-picker [our emphasis] to circle the globe.¡±
The 2001-05 compound annual rate of growth for our stocks simulation is 42.2% whereas the S&P 500 had negative growth for the period. Through Sep 2006, performance was a gain of 13.3%. Learn more here.
Copyright aiqresearch.com All Rights Reserved
¡¡
