Are Robots Better Investors Than Humans?

A new study suggests AI may recommend better stocks than people

Sophia's computer brain
Could the next investor who handles your money be a robot?
ITU Pictures/Creative Commons
By Tobias Carroll / February 15, 2020 7:00 am

Would you entrust your money to an artificial intelligence? On one hand, that could seem like stacking risk atop risk. On the other hand, it’s unlikely that a robot would suddenly develop Bernie Madoff-ish tendencies and begin defrauding investors. If nothing else, we’re pretty sure the Three Laws of Robotics prevent financial misdeeds.

Turns out that investing money might be something that robots do better than us humans. A new article by Vildana Hajric at Bloomberg has the specifics. This information comes from a new study from Indiana University’s Kelley School of Business, which compared stock recommendations generated by humans with those from AIs.

Buy recommendations peddled by robo-analysts, which supposedly mimic what traditional equity research departments do but faster and at lower costs, outperform their flesh-and-blood counterparts over the long run, according to Indiana University professors.

This doesn’t mean that the financial sector is about to go fully automated, however. For one thing, this remains a preliminary study. For another, as Hajric writes, people in finance do more than simply offer recommendations. “Wall Street research departments serve a variety of functions, among them connecting investors with company executives and gathering earnings and other corporate data,” Hajric notes.

Curiously, the notion that an AI would be able to do unexpected and lucrative things in the stock market is also a subplot of Ian McEwan’s science fiction novel Machines Like Me — another case of life imitating art, perhaps.

Still, the results of this study will likely lead to more implementations of this technology in the industry. It’s not, perhaps, as thrilling as the idea of a robot uprising — but it’s also just a bit safer.

Subscribe here for our free daily newsletter.

Daily Brief

News From Around the Web

April 5, 2020 April 4, 2020