AI-Based Trading is More Likely to Decrease than Increase Problems in the Markets

Futurist Thomas Frey has written an article suggesting that AI-based financial trading is a threat and is likely to cause a series of horrible market crashes....

This is a topic I've thought about a bit due to my being co-founder and Chief Scientist of Aidyia Limited, an AI-based asset management firm that will be launching a series of funds, beginning with a US equity long-short fund in a couple months.   Note that this is not a high-frequency approach -- our average holding period will be weeks to months, not microseconds.

So here are a few quasi-random musings on the topic....

Overall -- It seems clear to me that within a decade or two the financial markets will be entirely dominated by AIs of one form or another. Human minds are simply not well configured for the sorts of problems involved in asset price prediction, in such a complexly interlinked world as we have today.

However, I see no reason why AI-based trading would lead to worse crashes. Generally, when one creates an AI-based trading system, one does so with a certain mandate in mind, including a certain risk/return profile. IMO an AI that is well-done is more likely to operate within its intended risk/return profile, than a human trader.

Many of the trading disasters commonly attributed to quantitative methods are ultimately the result of plain old bad human judgment. For instance the Long Term Capital Management problem in the late 1990s did involve use of advanced quantitative models -- but ultimately the core of that problem was the use of leverage up to 100x, a choice made by the humans running the system not by the equations themselves. Common sense would tell you that trading with 100x leverage is pretty risky no matter what equations you're using. Having AI inside a trading system is not a total protection against the stupidity -- or emotional pathology -- of the humans trading that system.

The flash crash apparently was mainly due to automated systems, but probably not AI-based systems. Most HFT systems have minimal AI in them -- they're based on reacting super-quickly not super-smartly. The use of HFT shouldn't be conflated with the use of AI. HFT could be pretty much eliminated from any market by imposing a per-transaction tax like we have here in Hong Kong; but this wouldn't get rid of AI. Our AI predictors at Aidyia are currently being used to predict asset price movements 20 days in advance, not microseconds in advance.

But anyway...

As I've written previously in various places, I personally think the whole world financial and economic system is going to transform into something utterly different, once robots and AIs eliminate the need for (and relative value of) human effort in most domains of practical endeavor. So I view these issues with AIs and asset management as "transitional", in a sense. But that doesn't make them unimportant, obviously -- for the period between now and Singularity, they will be relevant.

I worry more about the ongoing increase of income and wealth inequality in nearly every nation, than about the impact of AI on the markets. Computers are already dominant on the markets, AIs will soon be dominant, but as long as the AIs are operating funds owned and controlled by humans, this doesn't really affect the nature of the financial system.  But part of this financial system is increasing wealth concentration -- and I worry that increasing inequality, combined with a situation where robots and AIs ultimately liberate people from their jobs, could eventually lead to a difficult situation.  I believe we ultimately will need some kind of guaranteed minimum income across the planet, the only alternatives being mass warfare or mass dying-off.  But I worry that the worse class divisions get, the harder this guaranteed-income solution will be to put in place, because the folks holding the remnants of human political and economic power will become more and more alienated from the average people.

So I do think there are lots of tricky worries in the medium-term future, regarding the relation between human society and (basically inexorably) advancing AI. But AI-based traders aren't really something to fuss about IMO.   I think that getting messy human emotion out of the mechanics of trading is more likely to decrease the odds of catastrophic crashes than increase it....  If you want to look out for dangers associated with the advent of AI based trading, I'd suggest to keep an eye out for more LTCM like situations where humans make egregiously bad emotional judgments in managing their AI prediction systems.   The AIs themselves are not likely to be the source of irrationality and chaos in the markets.

Easy as 1-2-3: Obsoleting the Hard Problem of Consciousness via Brain-Computer Interfacing and Second-Person Science

NOTE ADDED A FEW DAYS AFTER INITIAL POSTING: The subtitle of this post used to be "Solving the Hard Problem of Consciousness via Brain-Computer Interfacing and Second-Person Science" -- but after reading the comments to the post I changed the first word of the subtitle to "Obsoleting" instead.  I made this change because I realized my initial hope that second-person-experience-enabling technology would "solve" the "hard problem of consciousness" was pretty idealistic.   It might solve the "hard problem" to me, but everyone has their own interpretation of the "hard problem", and in the end, philosophical problems never get solved to everybody's satisfaction.   On the other hand, this seems a great example of my concept of Obsoleting the Dilemma from A Cosmist Manifesto.  A philosophical puzzle like the "hard problem" can't necessarily be finally and wholly resolved -- but it can be made irrelevant and boring to everybody and basically obsolete.  That is what, at minimum, I think second-person-oriented tech will do for the "hard problem."

The so-called “hard problem of consciousness” (thus labeled by philosopher David Chalmers) can be rephrased as the problem of connecting FIRST-PERSON and THIRD-PERSON views of consciousness, where

• the FIRST-PERSON view of consciousness = what it feels like to be conscious; what it feels like to have a specific form of consciousness
• the THIRD-PERSON view of consciousness = the physical (e.g. neural or computational) correlates of consciousness … e.g. what is happening inside a person’s brain, or a computer system’s software and hardware, when that person or computer system makes a certain apparently sincere statement about its state of consciousness

The “hard problem”  is the difficulty of bridging the gap between these.  This gap is sufficient that some people, taking only a third-person view, go so far as to deny that the first-person view has any meaning — a perspective that seems very strange to those who are accustomed to the first-person view.  

(To me, from my first-person perspective, for someone to tell me I don’t have any qualia, any conscious experience -- as some mega-materialist philosophers would do -- is much like someone telling me I don’t exist.   In some senses I might not “exist” — say, this universe could be a simulation so that I don’t have concrete physical existence as some theories assert I do.  But even if the universe is a simulation I still exist in some other useful sense within that simulation.  Similarly, no matter what you tell me about my own conscious experience from a third-person perspective, it’s not going to convince me that my own conscious awareness is nonexistent — I know it exists and has certain qualities, even more surely than I am aware of the existence and qualities of the words some materialist philosopher is saying to me…) 

So far, science and philosophy have not made much progress toward filling in this gap  between first and third person views of consciousness— either before or after Chalmers explicitly identified the gap.

What I’m going to suggest here is a somewhat radical approach to bridging the gap: To bridge the gap between 1 and 3, the solution may be 2.  

I.e., I suggest we should be paying more attention to:

• the SECOND-PERSON view of consciousness = the experience of somebody else’s consciousness

Brain-Machine Interfacing and the Second Person Science of Consciousness

There is a small literature on “second person neuroscience”   which contains some interesting ideas.  Basically it’s about focusing on what peoples brains are doing while they’re socially interacting. 

I also strongly recommend Evan Thompson’s edited book “Between Ourselves: Second-person issues in the study of consciousness”, which spans neurophysiology, phenomenology and neuropsychology and other fields.

What I mean though is something a little more radical than what these folks are describing.   I want to pull brain-computer (or at least brain-wire) interfacing into the picture!

Imagine, as a scientist, you have a brain monitor connected to your subject, Mr. X; and you are able to observe various neural correlates of Mr. X’s consciousness via the brain monitor’s read-out.  And imagine that you also have a wire (it may not actually be a physical wire, but let’s imagine this for concreteness) from your brain to Mr. X’s brain, allowing you to  experience what Mr. X experiences, but on the “fringe” of your own consciousness.  That is, you can feel Mr. X’s mind as something distinct from your own — but nevertheless you can subjectively feel it.  Mr. X’s experiences appear in your mind as a kind of second-person qualia.

Arguably we can have second-person qualia of this nature in ordinary life without need for wires connecting between brains.  This is what Martin Buber referred to as an “I-Thou” rather than “I-It” relationship.   But we don’t need to get into arguments about the genuineness of this kind of distinction or experience.  Though I do think I-Thou relationships in ordinary life have a kind of reality that isn’t captured fully in third-person views, you don’t have to agree with me on this to appreciate the particular second-person science ideas I’m putting forward here.  You just have to entertain the idea that direct wiring between two peoples’ brains can induce a kind of I-Thou experience, where one person can directly experience another’s consciousness.

If one wired two peoples’ brains sufficiently closely together, and setting aside a host of pesky little practical details, then one might end up with a single mind with a unified conscious experience.  But what I’m suggesting is to wire them together more loosely, so that each person’s consciousness appears on the *fringe* of the other’s consciousness.

The point, obviously, is that in this way, comparisons between first and third person aspects of consciousness can be made in a social rather than isolated, solipsistic way.

What is “Science”?

Science is a particular cultural institution that doesn’t necessarily fit into any specific formal definition.  But for sake of discussion here, I’m going to propose a fairly well-defined formal characterization of what science is.

The essence of science, in my view, is a community of people agreeing on

• a set of observations as valid 
• a certain set of languages for expressing hypotheses about observations
• some intuitive measures of the simplicity of observation-sets and hypotheses

Given such a community, science can then proceed via the search for hypotheses that the community will agree are simple ways of explaining certain sets of agreed-on observations.   The validity of hypotheses can then be explored statistically by the community.  

No Clear Route to “First Person Science”

The problem with first-person views of consciousness is that they can’t directly enter into science, because a first-person experience can’t be agreed-upon by a community as valid.  

Now, you might argue its not entirely IMPOSSIBLE for first-person aspects of consciousness to enter into science.   It’s possible because a certain community may decide, for example, to fully trust each other’s verbal reports of their subjective experiences.   This situation is approximated within various small groups of individuals who work together in various wisdom traditions, aimed at collectively improving their state of consciousness according to certain metrics.   Consider a group of close friends meditating together, and sharing their states of consciousness and discussing their experiences and trying to collectively find reliable ways to achieve certain states.   Arguably the mystical strains of various religions have at various times contained groups of people operating in this sort of way.

A counter-argument against this kind of first-person science might be that there are loads of fake gurus around, claiming to have certain “enlightened” states of consciousness that they seem not to really have.   But of course, fraud occurs in third-person science too…

A stronger counter-argument, I think, is that even a group of close friends meditating together is not really operating in terms of a shared group of first-person observations.  They are operating in terms of third-person verbal descriptions and physical observations of each other’s states of consciousness — and maybe in terms of second-person I-Thou sensations of each other’s states of consciousness.

But There Likely Will Soon Come Robust Second-Person Science

On the other hand, second-person observations clearly do lie within the realm of science as I’ve characterized it above.   As long as any sane observer within the scientific community who wires their brain into Mr. X’s brain , receives roughly the same impression of Mr. X’s state of mind, then we can say that the second-person observation of Mr. X is part of science within that community. 

You might argue this isn’t so, because how do we know what Ms. Y perceived in Mr. X’s brain, except by asking Ms. Y?  But if we’re relying on Ms. Y’s verbal reports, then aren’t we ultimately relying on third-person data?  But this objection doesn’t really hold water — because if we wanted to understand what Ms. Y was experiencing when second-person-experiencing Mr. X’s brain, we could always stick a wire into her brain at the same time as she’s wired into X, and experience her own experience of Mr. X vicariously.   Or we could stick  a wire into her brain later, and directly experience her memory of what she co-experience with Mr. X.  Etc. 

Granted, if we follow a few levels of indirection things are going to get blurry — but still, the point is that, in the scenario I’m describing, members of a scientific community can fairly consider second-person observations achieved via brain-computer interfacing as part of the “observation-set collectively verifiable by the community.”   Note that scientific observations don’t need to be easily validated by every member of a community - it’s a lot of work to wire into Ms. Y’s brain, but it’s also a lot of work to set up a particle accelerator and replicate someone’s high-energy physics experiment, or to climb up on a mountain and peer through a telescope.   What matters in the context of science as I understand it is that the observations involved can in principle, and in some practical even if difficult way, be validated by any member of the scientific community.

Solving (Or at least Obsoleting) the Hard Problem of Consciousness

Supposing this kind of set-up is created, how does it relate to first and third person views of consciousness?

I presume that what would happen in this kind of scenario is that, most of the time, what X reports his state of consciousness to be, will closely resemble what Y perceives X’s state of consciousness to be, when the two are neurally wired together.   Assuming this is the case, then we have a direct correlation between first-person observations about consciousness and second-person observations — where the latter are scientifically verifiable, even though the first or not.  And of course we can connect the second person observations to  third-person observations as well.

Thus it appears likely to me the hard problem of consciousness can be "solved" in a meaningful and scientific way, via interpolating 2 between 1 and 3.   At very least it can be obsoleted, and made as uninteresting as the problem of solipsism currently is (are other people really conscious like me?), or, say, the philosophical problem of whether time exists or not (we can't solve that one intellectually, but we don't spend much time arguing about it)....

Can Computers or Robots be Conscious in the Same Sense as Humans Are?

Of course, solving or obsoleting the hard problem of consciousness is not the only useful theoretical outcome that would ensure from this kind of BCI-enabled second-person science.

For instance, it's not hard to see how this sort of approach could be used to explore the question of whether digital computers, robots, quantum computers or whatever other artifact you like can be "genuinely conscious" in the same sense that people are.

Just wire your brain into the robot's brain, in a similar way to how you'd wire your brain into a human subject's brain.   What do you feel?  Anything?  Do you feel the robot's thoughts, on the fringe of your consciousness?   Or does it feel more similar to wiring your brain into a toaster?

Is Panpsychism Valid?

And what does it feel like, actually, to wire your brain into that toaster?   What is it like to be a toaster?  If you could wire some of your neurons into the toaster's sensors and actuators, could you get some sense of this?  Does it feel like nothing at all?  Or does it feel, on the fringe of your awareness, like some sort of simpler and less sophisticated consciousness?

When your friend hits the toaster with a sledgehammer, what is it you feel on the fringe of your awareness, where you (hypothetically) sense the toaster's being?   Do you just feel the toaster breaking?   Or do you feel some kind of painful sensation, at one remove?   Is the toaster crying out, even though (if not for your wiring your brain into it) nobody would normally hear...?

The second-person knowledge about the toaster's putative awareness would be verifiable across multiple observers, thus it would be valid scientific content.   Panpsychism, in a certain sense, could become a part of science....

Toward a Real Science of Consciousness

In sum -- to me the hard problem is about building a connection between the first person and third person accounts of consciousness, and I think the second person account can provide a rich connection.... 

 That is, I think a detailed theory of consciousness and its various states and aspects is going to come about much more nicely as a mix of first, second and third person perspectives, than if we just focus on first and third...