AI Could Help Investment Decisions

AI Could Help Investment Decisions

Artificial intelligence could improve financial advisors’ decision-making by removing emotional bias in a volatile market, contends an article in Proactive Advisor Magazine. With its ability to compute vast amounts of information with efficiency and neutrality, AI technology would also limit human error and make decisions unclouded by the conscious and unconscious biases that all human beings have.

One quality that often sets successful investors apart is discipline (case in point: Warren Buffett). Without the inherent shortsightedness and emotional influences that humans have, AI is designed to help investors act objectively and make better decisions by addressing pitfalls such as herd behavior. AI doesn’t possess herd-like tendencies; it won’t invest in something because everyone else is.

Another bias that investors lean into is known as “anchoring,” when the widely accepted price range of a commodity turns into the reference for an investor’s decisions. As the shares become lower than their anchor price, investors think they’re getting a great deal, even when they’re not. AI picks through the huge piles of data to find the right stocks or sectors to buy, the article explains, avoiding the impulse to buy a stock simply because it’s cheap.

AI can work through countless potential investment scenarios, uncovering both risks and rewards, in more effective ways than a human brain could. It also helps advisors with time management by developing portfolios and managing them while advisors attend to the human side of their work: building relationships. And AI could limit downside risk in those portfolios by spotting patterns to improve data mining and analysis—a time-and-resource-consuming task for managers.

Of course, expert investment managers have developed well-refined algorithm-based strategies for decades. But AI could advance those strategies in the near future. In fact, according to a poll published by Accenture in 2020, 80% of wealth managers said that they expect AI to “fundamentally transform the industry over the next five years.” While it can’t predict the future, AI can seek out investment opportunities that humans might miss, and give advisors another ally in the quest to find their clients a higher probability for success.