Cognitive psychology teaches us that humans are easily fallible as it comes to assessing the extent to which events are within their control. Humans also easily overestimate their own importance in the events that befall them and in turn underestimate the impact of factors beyond our control, such as timing, the environment and sheer luck. Are we over estimating our importance in financial markets? Without a doubt.
Through the conversations we’ve been privy to, there is hardly a sector that does not discuss the future implications of the electronification or digitization of value chains, some times using words such as commoditization. Companies such as law firms, consulting firms, investment banks have long debated the areas of their operations that are commoditized and that do not require specialized, unique knowledge. An IPO process has several components that are crucial and high value, and it has even more components that are tedious and ripe for commoditization. Same is true for the few business areas that an investment bank will be involved in.
Financial services by volume has several interesting occupations, least of which is trading. However, if you look at the complex, though logical and information rich environment,s what exactly is defensible for us humans that we can actually hold on to? Are we of the opinion that a human is required to execute a complex hedging strategy? Are we wrong, and if so by how wide a margin?
AI and machine learning are still clear hype terms, but the practical implications with modern processing power continuously increasing is phenomenal and unprecedented. In raising these points in conversations with more traditional firms in financial services or market participants, a common dismissal is “We’ve been using the basics, a phone and a relationship for decades. It worked then, it works now” and debunks such as “I’m too old for those things”. Not only do these represent demeaning way of looking at some of the most promising technological advancements, arguably they represent a deep misunderstanding of just how fundamental this change in landscape is.
By the way, none of this spells the end of human capacity, human creativity or human intelligence. Quite the contrary. But we’ve yet to see any plausible and defensible logical argument just why this human brilliance should be spent barking orders to another human that enters numbers into a sheet. We should be focusing our minds on areas where we actually add value, not areas where we think we do.
None of the current market applications in digital finance make use of real AI, despite what hype around robo advisor services may imply. But in the next wave of applications, we are going to be seeing new models unfold that will dwarf our imagination and displace tens of thousands of professionals into new capacities and capabilities. Like all change it will be uncomfortable and fought against, but try arguing the contrary point. Can you justify all the roles humans play in financial markets? Why are we relevant?
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).