AI to change investment

LESS RISK: ARTIFICIAL INTELLIGENCE ‘REDUCES PURCHASES’

Machines can improve the way people use money, says UJ economist.

Artificial intelligence (AI) was changing the face of economic theory and soon this could change the way you invest in the markets. This was according to Vice-Chancellor of the University of Johannesburg Professor Tshilidzi Marwala, whose research into the use of AI to make calculations in economic theory, found that where it was used, it significantly reduced the number of purchases and sales made in markets, but made each one more effective with less risk.

The theory of demand and supply, Marwala said, was one of the factors that influenced prices and the value of goods and services.

Using artificial intelligence, Marwala’s research found that AI engineers were able to build an individual demand curve to be able to individually price goods and service.

“It’s almost like a free market. On the internet, websites like Amazon make it possible to find two prices of a book within five minutes of each other.”

Marwala’s work was premised on the fact that humans were intrinsically bad at making economic decisions, because they were only able to process a limited amount of information at a time, despite unlimited access to data.

“When companies are listed on the stock market, their net worth is calculated and part of the company is offered to the public to buy shares of that company ... One additional element that comes about as a result of publicly trading shares is that the price of the stock can end up not reflecting the intrinsic value of the shares. This may result in overpricing or underpricing of stock as a result of a lack of knowledge of the real value of stock.”

The principle of AI in economics, Marwala explained, was to scale back the claims made by behavioural economics which also informed decisions made in the stock markets.

“What happens when it’s machines making those decisions? It’s going to be truncated in scale.”

He said computers were able to take far more factors into account in a shorter space of time.

Marwala added that AI could assist in fields like HIV and health care. –

It scales back the claims made by behavioural economics.

Tshilidzi Marwala UJ vice-chancellor and AI expert