Man vs Machine PART II
Isn’t artificial intelligence great? It has given us driverless cars, virtual assistants and even handy automatic devices that vacuum our homes (and sometimes hilariously transport our cats from room to room). That said, it’s also at the heart of sci-fi horror movies with malevolent, unhinged robots who want to take over humanity… That can’t be right.
In the first part of this two-part special, we examined the ways in which artificial intelligence stacks up to human intelligence when it comes to financial advice. After debunking common myths such as personal finances fluctuating according to personal priorities and being subjective for AI to be effective, it’s time we took a look at whether traditional human financial advisors measure up to the new kid on the block — sophisticated AI.
AI Relies on Hard Data
‘Full financial disclosure’ takes on a familiar form when in front of a financial advisor. The client will relay their financial situation in the most comprehensive terms called for by the advisor: from the state of one’s income, spending and existing debt, to personal circumstances such as elderly parents, a quirky penchant for 5-star vacations, unpaid side ventures and more.
Conversely, AI knows people through data, disregarding other information as unnecessary or non-qualifying. The actual numbers that appear on their financial statements; various bills incurred; actual earnings and spending. Sure, this may not include wishful yields on ventures, undocumented earnings or stashed cash savings. That said, no financial advisor — human or otherwise — would build a financial strategy based on the aforementioned pillars, anyway.
Score: Advisor = 1; AI = 1.
The Price of Inaccuracy
Data is important, but under some circumstances it can paint an inaccurate picture of one’s finances. A delay in the transmission of data between a bank and AI software, for example, can temporarily skew recommendations by not taking into account real-time spending and earning. Another option may be that AI offers an ineffective recommendation based on partial or erroneous data.
Of course, human advisors also make mistakes — sometimes due to incomplete information, and sometimes due to personal bias and/or incompetence. As with AI, these discrepancies cannot be avoided 100% of the time. They can, however, be minimized through thorough, systematic review of concrete information, without relying on hearsay or speculative financial information — a task best accomplished by multi-faceted, aggregative, super-intelligent AI software.
Score: Advisor = 0; AI = 1.
Are we that Predictable?
One of the strongest cases for enlisting the help of a human financial advisor is their perceived ability to predict how a person will continue to behave in terms of spending and earning potential, and then tailor a strategy that best leverages that person’s natural behavior. However, it’s crucial to remember that human exchanges are, by nature, subjective and highly biased. If we choose to reflect something to our financial advisor, we are — by definition — also choosing to withhold something from them. Past financial indiscretions may be conveniently left out of an advisory session, with most of the time dedicated to ordinary, day-to-day financial behavior that includes the steady inflow and outflow of money and debt repayment.
With AI, behavior is quantified and analyzed in numerical terms, guaranteeing that even past factors are not left out from recommendations. And yes, when considering all past behavior, all of us are in fact quite predictable. That’s not a bad thing — it means we’re consistent, and it’s best to face our harmful and useful behavior patterns before they take on a life of themselves.
Score: Advisor = 0; AI = 1.
The numbers are in, and according to our calculations, AI financial advisory beat the human variety 5:2. To clarify, we have utmost respect for financial advisors, and face-to-face sessions to discuss one’s financial situation are always called for. However, if the cost of a financial advisor is prohibitive, or if you’re just starting out and have set out to foster positive habits, it’s reassuring to know that AI is an option for valuable, personalized insight.
Originally published at gochange.co on October 17, 2016.
Change develops an Invisible Service that links to bank and credit card accounts, analyzes money transactions and discovers bad financial behavior (symptoms). It then matches those symptoms with behavioral treatments that are executed through smart sms messages (nudges).
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