Quantitative Trading

Grace Na

Introduction

As many people know, technology is evolving at an exponential rate. Soon there will be flying cars and vacation trips to mars. Because of the increasing use of technology, using AI to make predictions will occur on a daily basis. Using artificial intelligence to make predictions and decisions will heavily influence many important decisions in the future. But what makes this so accurate, how does this even work?

How AI makes decisions and predict

To say simply, AI makes decisions by analyzing trends and then suggesting a course of action. To add on to this, artificial intelligence will collect data on a certain subject and analyze for patterns. From this they are able to predict possible outcomes. An example of this could be predicting what a customer would buy based on their customer transactional data. AI will take data from different purchases a customer has made to learn about what the customer likes and dislikes. Then they will “predict” what the customer would purchase and recommend the item to them. An example of this could be Amazon, who takes this approach to recommend and increase purchases. Instead of using emotions and biased opinions, artificial intelligence will analyze and give a person the best results based on their data pattern.

AI decision making technique

Even though all AI decision making and predictions are done based on the idea of analyzing patterns from data and creating predictions based on them, the differences are found in the analytic technique. There are three types of analytic techniques are decision automation, decision augmentation, and decision support. Decision automation is where AI will make decisions based on perspective and predictive analytics. Perspective analytics is focusing on finding the best path of action based on the data given whereas predictive analytics uses statistical algorithms to predict outcomes. The benefits of this would be the speed and consistency of the decision making. Decision augmentation gives multiple different recommendations also using perspective and predictive analytics. The difference between automation and augmentation is that decision augmentation utilizes both human and AI knowledge for the best outcome. Lastly, decision support is where humans predict and decide the best decision based on descriptive, diagnostic, and predictive analytics AI provides. The main advantage this technique gives would be that human knowledge and gut feelings would provide a huge contribution during the process.

What Impacts AI Decision Making

AI decision making is heavily based on the data that it is given. Because artificial intelligence reads patterns and creates an analysis based on it, the quality of the data will heavily influence the accuracy of the analysis. If there isn’t enough data or isn’t relevant, the analysis will not be accurate and the prediction will be incorrect. (i don’t know what else to add on to here :( )

Impact predicting financial outcomes will have

Predicting outcomes will not only save billions of dollars, it will also help our economy grow. An example of this in our daily lives could be shopping. Everybody who has done online shopping has chosen the wrong product at least once. It could have been the wrong size or wrong fabric quality, either way, it has happened before. Using AI could help fish out the items that don’t match your preference based on previous purchases could help eliminate the human error and save money during the process. When looking at a bigger picture, using AI to predict and make decisions can help many leaders and companies prevent blowing money and use resources for better decisions. A company can use AI to look at their company data and establish goals that are both realistic and achievable. This can help companies choose better financial decisions, possibly saving them a lot of money. Predicting financial outcomes could also help with budgeting. Budgeting is looking into a company’s incomes and expenses. Budgeting is really important for a company and even a country because Government budgeting lets the government manage its resources and makes decisions based on what will help the country develop. Using an AI to help predict outcomes for budgeting will help the country grow and develop the economy.

Citations

Lockwood, Tasmin. “Artificial Intelligence Can Now Explain Its Own Decision Making.” Medium, DataDrivenInvestor, 25 Sept. 2018, https://medium.datadriveninvestor.com/artificial-intelligence-can-now-explain-its-own-decision-making-71fe14d2f53f.