AI already impacts our lives whether we like it or not and our finances are no different.

I think AI is incredible and has the potential to have a massive impact. But I also think it needs to be approached with a degree of caution as it is not a silver bullet at this stage.

What did we learn from Robo-advisors

When robo-advisors were launched years ago there was much speculation about the impact on the advice market.

Turns out managing ones finances successfully involves more than doing some calculations and buying a general portfolio of assets based on the outputs.

Robo-advisors basically lacked the ability to help with even moderately complex planning for multiple objectives or different scenarios.

In addition they almost entirely ignored the very human element of the advice process.

Money is a ‘feeling’ not just a way of affording things.

That fact alone makes a glorified calculator pretty redundant. 

Real life is messy. There is no single right way to get something done.

Trying to fit people into nice tidy little silos, that you can apply a generic investment strategy to, simply does not work well. 

It is scalable though and many large oligopolistic advice firms actually operate this way today.

With AI it seems like things could be a little different though.

Maybe AI can and will help with elements a robo-advisor simply could not.

AI is far from perfect at this early stage. 

Not least because it is well known for simply making stuff up. They are called HALLUCINATIONS.

It’s true – Many an AI models have been found to rather fabricate an answer than admit it does not know the answer. Strangely, the more recent and sophisticated versions seem to be more prone to these so-called hallucinations. 

Perhaps the A in AI in this context better fits the definition of ARTIFICIAL as being insincere.

The intricacies of AI is way over my head but here is something I believe rings true about AI at this early stage:

The more you know about a subject, the less impressed you will be with the output an AI model produces on that subject.

The less you know beforehand about the subject you are asking, the more impressed you will be with the output. 

This kind of logic has been well explained through past studies which I covered in another blog article- The Illusion of Knowledge.

The less we know about something the easier it is to feel smarter and more confident when we learn just a little bit about it.

AI can help us feel quite confident about something we previously knew very little about. 

We simply will not be able to identify where things are wrong or just over-simplified.

That it is hardly a great foundation for making financial decisions that impact on the rest of our lives.

Things will evolve – possibly at break-neck speed. Just make sure you know enough about what AI is doing for you and what it is not.

#orderpurposeprogress