Saturday, April 21, 2012

Will machines replace humans in investing?

Study of human evolution tells us that machines, even the humble bullock cart, has played a pivotal role in our progress. They have increased manifold, the productivity of mankind. This is not just by aiding them but also replacing them in a great number of operations. In fact in modern age, the debate on whether computers can eventually replace the human mind is still valid. Increasingly, the cost and efficiency of using machines has also made manpower dispensable in several industries.

Interestingly, even the area that was believed to be the forte of human mind is being captured by machines. The former was believed to be proficient at 'thinking' rather than the latter's efficiency in 'processing' information. This made the presence of human inevitable in areas like research. However, machines are multiplying the speed of thinking. A report quoted by Business Insider hints at just this. The findings of the report underlie the fact that machines may have been the cause of financial Black Swans. The term used to denote a highly improbable event seems to have been the result of ultra quick algorithms run by machines. Further these machines are expected to soon replace humans for ensuring profitable trades in complex environment.

We are not sure if nano-second thinking by machines can ensure profitable trades. But if that were true in all situations, every entity investing in high tech machines would have been a profitable one. The likes of Lehman Brothers and Goldman Sachs would have topped the list. And the investors who have spent years trying to refine the techniques of investing would have left the job to their machines. Hence, we certainly appreciate the importance of machines and quick thinking. They may be instrumental for success in complex investing. But unfortunately machines have never and will never decipher human behavior. And that we believe is a necessary cue that no smart investor would want to miss out on.

No comments:

Post a Comment