Will AI Replace Finance?

Will AI replace finance within the next 10 years? Well it depends on what you think finance is. Most people talking about AI replacing finance are talking about financial advisors. To be honest I don't think they add much value however I can see why someone would like to pay someone to educate them on financial products like 529, 401k, IRA, Roth IRA, and stocks. AI can and will replace some of these retail services such as simple portfolio construction however they will not perform at the level of a professional (institutional) quant finance fund.

There are also a vast majority of finance that is not retail. Banks need models to price loans, predict losses, predict consumer behavior for collections, price assets such as bonds, derivatives, stocks, and commodities. The institutional investing side needs similar model to the sell side (banking) including portfolio optimization, trade sizing, volatility modeling, and pricing all sorts of assets. There is also the corporate side of finance which is very people/relationship based which includes M&A, firm restructuring (distressed debt), angel investing, private equity, and other corporate services.

The real issue with finance is it is based on human behavior. Humans invent new products, manage other people, and make a wide range of decision on how to run a business. Consumers make all kinds of decisions on what to buy and how to spend their time. These human decisions are challenging to predict and are often "unpredictable" meaning models and theory must be used to get approximations and as time progresses new models are needed.


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