Tali Soroker is a Financial Analyst at I Know First.

Self-Learning Algorithm: AI Advances Ushering in New Era

Different industries using artificial intelligence

Jobs being replaced/created by algorithms

The future impacted by AI and algorithms

Hollywood executives love to make movies portraying the supposed fate of the human race. New sci-fi features like Ex-Machina and Robot & Frank show the interaction between man and machine and suggest the possible consequences and benefits of developing artificial intelligence. These stories, though, are nothing new to the film industry. A.I. Artificial Intelligence came out in 2001, and I, Robot with Will Smith was released in 2004. Today, though, when people watch movies like Ex Machina about a young man who is hired to perform a Turing test on an artificial intelligence machine, it is easy to recognize the world that we live in today. The movie is hardly futuristic at all, and the topic is one that people are used to hearing about.

(Source: Google Images: Movie Ex-Machina)

Artificial intelligence has developed now to the point that companies are designing cars that can drive themselves, phones that can recognize speech patterns, and computers that can predict the stock market. It’s not surprising that companies like Google and Facebook are using and developing artificial intelligence to target advertisements and relevant content for their users. What people may find harder to believe is that AI is prevalent in a number of different industries including finance and even journalism. News outlets, for example, are using algorithmic analysis to optimize their content and attract more subscribers. There are even some news organizations that have algorithmic machines working in the editorial departments. Other uses for AI are in the recruitment process for various companies, so in essence, an AI will look at your resume before a human does. With these particular advancements, AI has gained the ability to impact anybody’s life, regardless of the industry they find themselves in.

Now that we’re living in a world with this kind of advanced technology, it’s time to look forward again. Aside from the dramatic outlooks that we see in the movies, one of the most serious concerns that people have with advanced technology is the automation of jobs leading to the displacement of humans in the workforce by machines. In 2013, a paper was published by two researchers from Oxford in which they claimed that 47% of American jobs are likely to be automated within the next 20 years. People losing their jobs and being replaced by machines is nothing new, factory workers have been losing their jobs to machines for decades. Now, however, we find ourselves in a time when technology is replacing not only people that are hired to do manual labor, but also highly educated professionals working on sophisticated analysis and research.

In this Oxford paper, the researchers assessed the likelihood of automation for 702 different occupations based on nine variables. While positions in the health care industry, for example, demand human interaction, the finance industry relies more heavily on information processing. These are differences that led to the determination that physicians have a low probability of being replaced by machines while in the finance industry the study determined that 54% of jobs are at high risk of being automated. Other factors being considered include the determination of tasks in a profession being cognitive versus manual and routine versus non-routine.

Automation in the stock market is not a new phenomenon. In 1996, ticker tape was replaced with electronic tickers, diminishing the need for lower-paid clerks who would retrieve and deliver the updated tapes. With the advancements in computerized trading, trading firms have been able to significantly reduce the number of employees who buy and sell stocks over the phone. Goldman Sachs, for example, has reduced the number of over-the-phone traders from around 600 to just 4 people. Now, the industry is facing automation in an entirely new area, research and analysis. The Industrial Age is over, and we have entered the Computer Age or the Age of Digitalization. Massive amounts of data have been added to electronic databases and made available to anybody with access to the internet. At the end of 2015, the Harvard Law Library began a project called “Free the Law,” in which they are aiming to create a database of their entire collection of U.S. case law. Their collection is one of the largest collections of law materials in the world. With access to this information along with economic data, algorithms can be used more effectively to map the effects of court cases on stocks and world market.

Vintage ticker tape (left) and modern electronic tickers (right)

Companies and hedge funds are working diligently to develop algorithmic systems that learn from databases like these to model the stock market as a multivariate time series. With these algorithmic methods, analysis that used to take multiple work days takes mere minutes. Multivariate time systems, like the stock market, are affected by innumerable variables. This is seen easily in the case of Amaranth Advisors, a hedge fund that folded after losing $5 billion in one week due to mild weather conditions. Actions in court cases can have equally devastating or rewarding consequences for investors. Imagine an active court case involving Google or Apple, the outcome could have widespread effects on the market as a whole. Based on past court outcomes and the market shifts that occurred immediately following, it is possible for these algorithms to forecast what is most likely to occur in future court decisions. The algorithms being created and used by these companies are not limited to analyzing market data, they are using artificial intelligence to make accurate predictions of future stock trends as well.

I Know First, in particular, has harnessed the ability to model the stock market using an advanced algorithm and produces daily forecasts of future market trends. The algorithm was developed by Dr. Lipa Roitman, a scientist with more than 35 years of experience in working with artificial intelligence and machine learning. Each day, the self-learning and self-adjusting algorithm produces market forecasts with trends of stocks, commodities, and indices over 6 different time horizons ranging between a few days and a year. The kind of analysis and pattern recognition that the system does each day could never be accomplished by a human in any amount of time. Beyond predicting stocks trends, the algorithm can also be programmed to predict other similarly chaotic systems. Dr. Roitman used a similar algorithmic tool to predict chemical processes in his past work and the algorithm can also be used to predict weather patterns and seismic activity. Advances in algorithmic science are opening the door to new possibilities of human knowledge, along with other consequences.

As more jobs are lost to computers and machines each day, people are becoming increasingly concerned about the future job market that they and their children will be faced with. The owner and founder of Kensho, another company that has developed an advanced computational system to analyze the stock market, believes that between a third and a half of current employees in the finance sector will be replaced by automation software created by his company and others within 10 years. This sounds catastrophic, but the advancement of technology is creating jobs simultaneously. While traders may be out of work, programmers are being hired to develop and maintain new software. It is entirely possible that ten or twenty years from now, when half of the people currently working in finance have lost their jobs, there will be a plenitude of jobs in industries that we can’t even imagine now.

We are living in a world with accurate predictive technology. Algorithms have been designed to predict stock trends, target advertisements and determine loan eligibility. With the speed of technological advances, it’s hard to picture where the world will be, even in as little as 10 years from now. People will continue to be replaced by machines and computers, but at the same time, new jobs will be created to meet the changing needs and capabilities of the human race. In 2002, Steven Spielberg introduced us to the imaginary world of pre-crime drama with his movie Minority Report. Who knows? Maybe in the future, some of those jobs will be replaced by a police unit that uses a predictive algorithm to arrest murderers before they commit their crimes.