Why The Wisdom of the Market Crowd Beats AI
By Financial Times
Published on June 1st,
Published on June 1st,
In 2016, a hedge fund called Sentient Technologies used artificial intelligence (AI) algorithms to predict the outcome of the Kentucky Derby, one of the most famous horse races in the world. The company trained its AI models using a vast amount of data including racecourse conditions, horse pedigree, and jockey performance. The predictions were so confident that the hedge fund put down a $100 bet on the race, expecting to win big. However, the result was a spectacular failure, and the hedge fund lost the bet.
This is just one example of how AI can fall short when it comes to making predictions in the financial markets. While AI can analyze vast amounts of data at a speed that is impossible for humans, it lacks the human intuition and wisdom that is often needed in complex and unpredictable markets.
Market crowd wisdom, on the other hand, is known for its remarkable accuracy in predicting the direction of the markets. A study conducted by Cass Business School in London analyzed the accuracy of market crowd predictions versus those of financial analysts over a period of six years. The study found that the market crowd predictions were, on average, 40% more accurate than those of the analysts.
Another example is the prediction market Intrade, which allowed users to trade contracts on the outcomes of political events such as elections and geopolitical crises. InTrade had an outstanding track record of accuracy, accurately predicting the outcomes of the 2004, 2008, and 2012 US presidential elections, as well as the 2010 UK general election.
These examples illustrate how the wisdom of the market crowd can be a powerful tool for making informed decisions in the financial markets.
The title of this article may seem provocative, but it reflects a truth that is becoming increasingly evident in the financial industry. While AI has many benefits, it is not a silver bullet that can solve all the problems that investors face. The market crowd, on the other hand, has a deep understanding of the markets that comes from years of experience and has proved its predictive accuracy time and time again.
Investors who are looking to make informed decisions in the financial markets should take note of these points and consider the benefits of market crowd wisdom over relying solely on AI analytics.
Curated by Team Akash.Mittal.Blog
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