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Over many conversations and watching tumultuous market movements whipsaw sectors, I have come to the conclusion that a lot of people have a lot of opinions about artificial intelligence (AI) without actually understanding either the sectors or even the technology.<\/p>\n
Firstly, what is AI?\u00a0Well, AI is a marketing term. The technology is not intelligent; instead, it operates based on inferencing (they literally refer to the process of using AI as \u201cinferencing\u201d, as opposed to creating AI, which is \u201ctraining\u201d).<\/p>\n
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The technology inferences<\/em> from large data sets to arrive at correlations \u2013 and depending on a user\u2019s request or inputs, effectively\u00a0uses mean reversion to fit the best correlations together. (A little statistical humour, but \u2018AI\u2019 should rather be called a \u2018Mean Machine\u2019.)<\/p>\n In other words, based on all the data Google\u2019s Gemini AI has been trained on, when a user inputs \u2018What is the best, super short, super easy recipe for chocolate cake?\u2019,\u00a0the strongest correlations \u2013 and thus, the most likely \u2018best\u2019 answer \u2013 is, on average, the following:<\/p>\n The 3-Ingredient Miracle Cake<\/strong><\/p>\n Process:<\/strong><\/p>\n Source: Google\u2019s Gemini, with Gemini\u2019s source being all the chocolate cake recipes on the i<\/em>nternet.<\/em><\/p>\n The marketing teams at AI firms have convinced everyone that the statistical inferencing technology is \u201cintelligent\u201d and for that I give them credit.<\/p>\n Watch:\u00a0Magda Wierzycka\u2019s alarming Davos insights on AI, global power shifts and market risk<\/p>\n ADVERTISEMENT<\/p>\n CONTINUE READING BELOW<\/p>\n<\/div>\n<\/div>\n Likewise, the cutely named \u201challucinations\u201d that AI can generate from time to time is just because the statistics sometimes point towards an answer (generative output) that is not actually true and\/or does not actually exist.<\/p>\n The correlation exists (or is implied from existing data) but it does not actually exist in the real-world (such as hallucinating legal precedents from courts cases that never happened).<\/p>\n Rephrased, AI does not \u2018hallucinate\u2019, it just gets some things wrong and has no morals (because you need self-awareness and intelligence to know what these are), and thus does not just say \u201cI don\u2019t know\u201d.<\/p>\n Once again, the marketing teams at AI firms have spun this fact into a lovely marketing phrase to make users more comfortable with it.<\/p>\n Listen\/read: Last week, many stocks in insurance brokerages around the world sold off sharply, like Brown & Brown and AJ Gallagher. Why? Because Insurify launched a ChatGPT app that can help users research, browse, compare and, ultimately, buy insurance quotes.<\/p>\n So who needs insurance brokers?<\/p>\n Yay! All the world\u2019s problems are solved \u2026<\/p>\n But what if you have bespoke, complex risk needs rather than simple motor cover? What if your risks do not look like anyone else\u2019s risks?<\/p>\n<\/blockquote>\n Likewise, last week, the stocks in financial advisory firms like Charles Schwab, Raymond James Financial, and Stifel Financial also tanked sharply. Why? Altruist announced the launch of a new AI-powered tax planning tool.<\/p>\n This allows financial advisors to create personalised tax strategies for clients by automatically analysing tax forms, financial statements, and other documents within minutes.<\/p>\n ADVERTISEMENT:<\/p>\n CONTINUE READING BELOW<\/p>\n<\/div>\n<\/div>\n Yay! Again, all the world\u2019s problems are solved \u2026<\/p>\n But what if it hallucinates, and you suddenly have huge tax penalties? Who do you sue?<\/p>\n<\/blockquote>\n What if\u00a0the data it was trained on is out of date? What if tax laws change, but its advice does not?<\/p>\n Dig deeper, and consultancy firms like Accenture have seen their share prices sell off steadily across the past year and a bit, because apparently you can spin up deep research pieces on any subject matter that will make consultancies redundant.<\/p>\n Yay! All the world\u2019s problems are solved \u2026<\/p>\n Read: But which CEO or CFO is going to pin their career on a ChatGPT report suggesting massive corporate restructuring and directing huge capital decisions for a group when convincing their board, shareholders and investors that this<\/em> is the correct thing to do? (Even more subtly, to implement actual AI into a complex business that is not filled with AI and IT specialists, you need more consultants like Accenture rather than\u00a0fewer \u2026 hence, we invested our funds in Accenture recently!)<\/p>\n So what can<\/em> AI do?<\/strong><\/p>\n It can (statistically) correlate vast amounts of data reasonably well and much, much<\/em> faster than any human.<\/p>\n Once correlated, and if trained and set up correctly, it can therefore automate some tasks and approximate processes wonderfully and at a faster speed and lower cost than humans.<\/p>\n ADVERTISEMENT:<\/p>\n CONTINUE READING BELOW<\/p>\n<\/p><\/div>\n<\/div>\n Use it\u00a0this<\/em> way, and AI performs spectacularly.<\/p>\n And what can AI not do?<\/strong><\/p>\n AI cannot give you assurance that it is correct and that you can base your entire life, wealth, career or business on its outcomes.<\/p>\n AI does not do bespoke<\/em> well. If the need differs from the data it was trained on, it risks hallucinating.<\/p>\n AI does not do creative<\/em> well (if it doesn\u2019t exist, AI cannot come up with it).<\/p>\n And AI cannot form, maintain and manage trust among human beings.<\/p>\n<\/blockquote>\n Of course, for economies to operate, people need to trust each other; for example, auditors issuing an audit opinion or advisors structuring your family trust, which should outlive you, or a rating agency placing its reputation on the line with a credit rating.<\/p>\n Or am I wrong? There is no doubt much that you can contribute as we discuss this uncertain future.<\/p>\n Keith McLachlan is CEO of Element Investment Managers.<\/em><\/p>\n Follow Moneyweb\u2019s in-depth finance and business news on WhatsApp here.<\/em><\/p>\n<\/p><\/div>\n\n
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