Because what they are doing is really (an indirect form of) sales.
Why do traders in investment banks feel their jobs are immune from AI, etc?
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Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#72I just think that if AI could beat them, they were already replaced. Any innovation in trading is automatically implemented. May be this will be possible in the future but it doesn't depend only on deep learning techniques and having huge samples for learning because they have both.
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#73Earlier quoted context omitted.
Exactly lots of people want the experience of the salesman in picking a house, information on the neighbours and what its like to leave there & why the previous person is getting rid of it. The HN bias is a bit like the salesman is the inefficient part disincentivized to help you and trying to rip you off.
The salesman is incentivized to screw you. They work on commission so the faster they can move houses, the better. Real estate agents are screwing both the buyer (feed you bullshit to get you to buy) and the seller (convince to back off of higher prices because the 0-15% difference in price isn't worth the weeks more effort on their commission).
Like a restaurant though, if they were bad at their job they wouldn't attract new clients. Under a HN analogy if they screwed clients they'd have a 0 rating and lose future clients.
The assumption you have is they are simply a market matcher but they're offering more than that.
Their incentive is to get the highest possible sale price in the shortest amount of time and a good reputation. That high price has to also be clearable meaning it cannot be just up in the air and seemingly arbitrary (it can cost either time or reputation).
Without them there is much more information asymmetry. Using an online version you basically have access to the same information you would as with them but without the human element to judge through nor their experience on offer.
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#74Due diligence on the financials of a company (what investment bankers are supposed to do) is actually really hard to get right with the algorithms we have today. Much of the data and insight compiled by an I-banker today does not exist in an easily parse-able form for automated algorithms, and a substantial amount of the computation relies on common sense knowledge.
> Due diligence on the financials of a company (what investment bankers are supposed to do) is actually really hard to get right Diligence is automatable, in the long run. There is a human element to it, but it is small in most contexts. Bankers solve trust problems. An AI would need to be trustworthy in a personal way to replace bankers--this only happens with AGI. For a long time, as long as humans control capital,…
> Diligence is automatable, in the long run. There is a human element to it, but it is small in most contexts.
I'm not sure I agree with the first sentence, but I agree that there is a human element. If true, then at least some investment banking jobs must remain immune.
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#75Is there a fallacy name for this? i.e., asking a question that suggests something ("investment bankers have this feeling") as a premise, that may be not true.
It isn't a fallacy to ask a question :)
Indeed it can be: https://en.wikipedia.org/wiki/Loaded_question
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#76I just think that if AI could beat them, they were already replaced. Any innovation in trading is automatically implemented. May be this will be possible in the future but it doesn't depend only on deep learning techniques and having huge samples for learning because they have both.
AFAIK the bulk of investment bankers are beaten just by chance as this article suggests: http://www.automaticfinances.com/monkey-stock-picking/
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#77Everybody feels their job is safe from automation. Its the same way planes crash but not mine . Believing "I am special", is just built into us.
Not only do I believe that my job can be automated - I've spent years trying to do just that. Of course, I wouldn't be giving the scripts to my employer, just spending more time doing other things...
If you wrote those scripts during work time, they might as well belong to your employer.
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#78For around eight years my primary job function was to put investment bank traders out of a job, by automating what they did. There were still humans in charge of the algorithms, but they moved more towards Python programmers than market traders. Many of the "old-style" traders bitched about what we did, and most moved jobs to banks that were less advanced. (I was in the interest rates line; typical trade size is $10M…
I am curious about how the old-style traders actually did their jobs. Did they base their trading decisions on data or instinct?
Trading illiquid products is all about knowing your market, and having a good idea of who you will be able to sell something when you accept to buy it (you are not in the business of taking a position you cannot get out of). Having a good understanding of the flows, who is buying, who is selling, who still has room for this exposure, etc.
This is achieved by discussing with sales people, who themselves discuss with investors, as well as traders at other banks (through brokers).
Now the definition of illiquid varies. Many products that used to be illiquid are now pretty liquid (interest rate derivatives) while many other are liquid only for small trade size (certain bonds). FX is an interesting example. It is very liquid but it is also a market where many clients need to make jumbo transactions on the spot, and these would be market moving if not carefully managed. That's something that could be probably automated.
I find the article very poorly written. "Investment bankers" is extremely vague and the breadth of very different product in different markets traded by investment banks makes this sort of generalization a bit absurd.
The other reason why I think the article doesn't make sense is that investment banks cater for certain giant markets (equity, FX, treasuries, etc) but also for a huge variety of niche markets, in which only a handful of banks and traders are active. If you add the salaries of the couple of traders in each of the active banks on one particular market, the savings you would do automating the market wouldn't justify the years of IT development to train and fine tune an algo, which would still need to be maintained as the market evolves (and then you end up overpaying an AI expert instead of overpaying a couple of traders...).
I think AI will shine at solving wide problems that affect a large number of people. Self driving cars. Butler robots. Building a house. Manufacturing something common. These markets have the scale to justify large investments.
I very much doubt that AI will replace every single complex task done by a man today, for the very same reason that software hasn't replaced every single manual task done by a man today: the cost of developing and maintaining software can easily exceed the salary of the few guys you are trying to replace. To overcome that with software, we need to dramatically reduce the cost of developing software, enabling ordinary employees to develop their own software. But even today we are very far from that. What's the % of a generation who can actually code out of college today? How easy and useful are the main programming languages? I'd argue we are now going into the opposite direction. Microsoft is poised to take VBA out of office. All major OS are evolving toward the iOS-style locked down platform where you can only run Apple/Microsoft approved software. Corporate IT is ever more locking down platforms with software whitelisting, etc. I wonder if the golden age of productivity improvement through software has not peaked.
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#79because traders are used to seeing such predictions fail. Reuters was trading FX electronically since the early 1990s. At the tier one IB I worked for the IT budget was 500m USD a year (across products), and that was in 1997! Huge resources were thrown at automation. However, to this day, large trades in FX (> 10m USD notional) are still almost exclusively performed by humans over a telephone or over the bloomberg me…
> Also, high finance is not just about what you know. It's inevitably about who you know, about "illogical" factors such as salesperson charisma, entertainment, and most importantly, a credible personality type that understands the edge case risks
That explains the LIBOR scandal.
Re: Why do traders in investment banks feel their jobs are immune from AI, etc?
#80>No amount or greater sophistication of the algorithmic structures listed above, can replace genuine human nuance, interaction and trust. I don't think this is true. Not at all.
Me neither. How much of the genuine human nuance is present in today's financial services or any commission driven industry - next to nothing. Every agent/broker is motivated by the highest commission he/she can make, nothing more.
Even if this was true (which it isn't: in most areas of finance blindly following this strategy is a rapid route to getting sued for breach of fiduciary duty) there's a lot of human nuance involved in actually selling the service to a client who won't take "well the model isn't tractable but here's last year's results and an article on ML" as an answer