In a new report, the Securities and Exchange Commission details the results of an experiment it conducted to examine the potential role of artificial intelligence in supporting the decision-making process of individual investors.
The experiment used an online investment simulation to test investors’ response to investment recommendations made by humans alone, and a tool artificial intelligenceand a combination of the two, when they were provided with $20,000 in virtual cash to invest.
“We found that participants adhered more closely to the investment proposal when it was presented through a combination of human and AI sources,” the report, detailed by advisor and seen by Sky News Arabia Economy, said.
The experiment also found that investors showed no preference between purely human advice and purely AI-based advice — leading the researchers to conclude that “Canadian investors may not have a clear aversion to receiving investment advice from an AI system.”
However, the regulator noted that the observed preferences were not statistically significant, and may not be more predictive than chance.
The report said the experiment highlighted the risks associated with AI tools giving investors false or inappropriate advice.
“As with human suggestions, AI and hybrid sources of suggestions had a significant impact on participants’ asset allocation decisions, even when this advice was unsound,” the report said, adding: “There is a need to ensure that algorithms are based on high-quality data, that factors that contribute to bias are proactively addressed, and that these applications prioritize the best interests of investors rather than the companies that develop them.”
Other findings of the research include:
- There is a “huge opportunity” for artificial intelligence to help detect fraud and scams.
- AI tools can be used to improve financial inclusion by expanding cost-effective access to investment advice.
- Investors show a bias to hold higher amounts of cash in their portfolios than most experts recommend.
“This research highlights the opportunities that AI can create for Canadian investors and market participants,” said Leslie Byberg, executive vice president of strategic regulation at the Canadian Securities Commission, in a press release. “It is important that we are able to capitalize on these opportunities while ensuring that investor protection remains at the forefront of how we regulate.”
Pros and Cons
For his part, Dr. Ahmed Banafa, academic advisor at San Jose State University in California, pointed out in his interview with the Sky News Arabia Economy website that artificial intelligence has become a powerful tool that helps improve financial decision-making, but he stressed that it cannot be relied upon completely as a substitute for human financial advice.
Banafa explained that:
- One of the main advantages of using AI is the ability to quickly and easily access comprehensive information about financial and investment instruments.
- In addition to its ability to analyze huge amounts of financial data with high accuracy and in a short time, which contributes to identifying economic patterns and trends.
- Another advantage of AI is its ability to personalize financial advice based on each user’s individual goals and circumstances, and it is also less expensive than human financial advice.
He pointed out that artificial intelligence-based systems provide advisory services around the clock and anywhere, making them a flexible option for investors.
However, Banafa warned of some challenges associated with relying on artificial intelligence, stressing that these systems still lack a deep understanding of human emotions and contextual knowledge, which may lead to providing inappropriate advice in some cases.
He also noted that AI may struggle to deal with complex financial issues that require careful analysis of individual circumstances.
He warned that systems that rely on artificial intelligence may be subject to programming errors that affect the accuracy of the results, noting that the quality of the data on which the models are trained plays a crucial role in achieving the desired results. At the same time, the technology expert expressed concern that these systems may raise questions about the privacy of personal financial data that is shared with them.
He concluded by saying that AI can be a valuable tool for investors, but it should be treated with caution.
He recommended that it be used as a source of information and analysis only, stressing the need to consult a human financial expert to make important financial decisions.
Widely used
In a statement to Sky News Arabia Economy, Managing Director of IDT Consulting and Systems, Mohammed Saeed, explained that artificial intelligence is currently widely used in the field of financial consulting, with this use increasing over time. He pointed out that artificial intelligence in the field of investment relies on advanced statistical models to predict future market movements, which allows for accurate assessments of financial advice based on these models.
He added that there are basic principles in the world of investment, such as diversification and risk management, which are principles that artificial intelligence can implement with high efficiency and accuracy, explaining that artificial intelligence is able to suggest different investment strategies and provide guidance on the best ways to invest.
In the same context, Saeed pointed out that artificial intelligence is also used in analyzing content on social media, to measure public opinion about stocks through what is known as sentiment analysis. He also noted that automated trading based on artificial intelligence has become an effective tool for executing trading operations at a very high speed, which enhances the ability of investors to compete in the financial markets.
He also explained that artificial intelligence helps individuals manage their personal financial lives by analyzing financial obligations versus revenues, in addition to providing accurate alerts about financial dues. It is also used in the insurance sector to detect fraud by analyzing customer data.
He pointed out that high accuracy is one of the most prominent of these positives, as systems based on artificial intelligence reduce the possibility of human errors, stressing that these systems operate continuously without the need for rest, which leads to reducing operational costs compared to human employees.
He also stressed that the decisions made by artificial intelligence are based on purely mathematical rules, which reduces the impact of human emotions on financial operations.
However, Saeed added that there are some negatives associated with the use of artificial intelligence, noting that it may face difficulty in dealing with sudden developments or adapting quickly to the surrounding conditions. He also pointed to the security risks associated with cyber attacks that may affect the system’s performance.
