“Markets Will Always Outsmart The Best AI Systems That Our Computer Scientists Develop”

By Eric Peters, CIO of One River Asset Management

“Powerful AI systems should be developed only once we are confident that their effects will be positive, and their risks will be manageable,” read the open letter [here], signed by countless luminaries from the technology industry and various other fields.

Emad Mostaque, CEO of Stability AI, a leader in the generative AI space inked it. Many less prominent researchers did too.

“We call on all AI labs to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4.”

Elon Musk was a signatory, and of course, he’s building an AI driving system which is remarkable but has a long way to go.

Based on my personal experience, it has achieved rough parity with a drunk sixteen-year-old.

Or, in economic policy terms, Tesla’s AI has reached singularity with the government’s team responsible for stress testing regional banks.  Naturally, it surpassed the Fed’s inflation forecasting team many months ago.

And without reliable inflation estimates, it’s no wonder that our central bank’s interest rate forecasts are such a poor indicator of future policy rates. Financial markets are consistently superior to any group of forecasters, even the mob at the Fed who not only have the economy’s most comprehensive data sets, but who can also directly manipulate markets to make their forecasts come true.

Such teams of experts are no match for free markets, which are humanity’s first glimpse of a true AI. The collective wisdom of the crowd is a clear superhuman intelligence. That is not to say markets are infallible. But they are infinitely adaptable, resilient, and evolve to exploit our vulnerabilities, fears, secrets. At scale, such systems, move money from weak hands to the strong.

And so long as humans are the key decision makers in our economic and political systems, markets will outsmart the best AI systems that our computer scientists develop. But as in all battles for survival, superiority, strong hands will figure out how to harness AI to strengthen our advantage as we trade, invest.