As the US Open bubbles along at Flushing Meadows, it provides an interesting petri dish to examine how we deal with and process the encroachment of automation into a sphere of human activity.
As the tennis fans among you will already be aware, the US Open has made a transition this year to replace its line judges with the automated “Hawk-Eye” system, which had previously operated in the shadows, to be called in as the definitive arbiter, in moments of human dispute (not unlike the VAR system in soccer). In a nod to our humanity, the technology uses differing human voice line calls to simulate the former experience.
For the players there have been the moments of disbelief as they look and look again at a close line call with the righteous anger of “That Ball was in!” welling up in their hearts, only to let it sheepishly dissipate as they accept that in fact, that ball was out, because a non-human, impartial technology can prove it was.
Whether or not all of this is good for tennis depends entirely on the perspective from which it is viewed, the subjective experience. For some, the removal of this unnecessary inaccuracy improves the game, for others though, the injection of a little fallibility, the randomness of the disputed call, was all part of what added to the excitement and entertainment of the game.
Interesting as this might be, what one might wonder has tennis to do with investment management? Well, there is a parallel with regards to the deployment of AI trade decision-making strategies.
Sophisticated investors are increasingly cognizant of both the potential power of AI and the general malaise in active management.
Well-built AI strategies could be seen like Hawk-Eye as a useful application of unemotive technology to provide benefit in clearly defined circumstances. Of course, this will not necessarily appeal, at least initially, to all investors, as for some it may seem to strip out some of investing’s entertainment value. That said, sophisticated investors are increasingly cognizant of both the potential power of AI and the general malaise in active management which demands innovation and a shift from the status quo.
Investors are fortunate in that they don’t have to adopt a partisan position with regards to AI. There is no magic generic AI that address the plethora of investors’ concerns for which they are seeking new solutions. Investors can, however, assess the situations where AI strategies clearly provide edge and use them to achieve the required outcome, like where the unambiguity of the Hawk-Eye system is desirable.
The responsibility falls on AI managers like us to educate and convince a rightly (initially) skeptical investor audience of the benefits of using AI trade decision-making. Investor confidence is built through evidencing that it works, accompanied by a clear explanation and illustration of a repeatable investment process. Disturbing and ultimately altering long established approaches is very much a necessary part of how investment evolves, mindful that at human, emotional level some boring technology will never be able to eclipse or replace the sheer theatrical drama of a McEnroe moment. ■
© 2021 Plotinus Asset Management. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.
Image Credit: SeventyFour at Can Stock Photo.