{"id":53305,"date":"2023-08-26T12:50:09","date_gmt":"2023-08-26T16:50:09","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/opinion-will-ai-prevent-the-next-enron-level-market-blowup-or-be-the-cause\/"},"modified":"2023-08-26T12:50:11","modified_gmt":"2023-08-26T16:50:11","slug":"opinion-will-ai-prevent-the-next-enron-level-market-blowup-or-be-the-cause","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=53305","title":{"rendered":"Opinion: Will AI prevent the next Enron-level market blowup or be the cause?"},"content":{"rendered":"
\n

I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0<\/p>\n

Artificial intelligence, which has exploded into the public eye over the past year, certainly falls into this category. In the field of finance, this dazzling technology offers both promise and peril. That\u2019s the takeaway from a conversation I had with Craig Lewis, a professor of finance at Vanderbilt University, who previously served as chief economist for the U.S. Securities and Exchange Commission (SEC). We talked at a recent conference on disinformation at Cambridge University in England.\u00a0<\/p>\n

\n

Disinformation (I host a\u00a0podcast on this topic) can be defined as the manufacture and dissemination of false narratives with the deliberate intention of deceiving others. Some of the most famous accounting scandals in recent history fall neatly into this category. Two notorious examples: Enron Corp., once a Houston-based energy giant, and WorldCom, once America\u2019s second-largest long-distance telephone company, collapsed more than two decades ago after executives were caught cooking the books in sleazy attempts to con investors. <\/p>\n

Similarly, Bernie Madoff, who ran the biggest Ponzi scheme in history before being outed in 2008, can also be considered a manufacturer of disinformation\u00a0for his years of conning gullible investors into believing that his asset management business could generate consistent, above-average returns.\u00a0<\/p>\n

In Cambridge, I asked Lewis whether artificial intelligence could have rooted out these fraudsters sooner.\u00a0\u201cIt\u2019s really interesting,\u201d Lewis says. \u201cI think the natural language processing component to fraud detection and financial results is kind of right at its infancy.\u201d\u00a0This, Lewis says, could have an impact when it comes to documents that corporations are required to file with the SEC, like 10-Ks.\u00a0<\/p>\n

\u201cWhen you think about the management discussion and analysis section in a 10-K, it\u2019s a company\u2019s attempt to explain what\u2019s going on. There is a lot of opportunity to try to position and interpret your performance through the way you represent the text in your financial statements. So in addition to having these quantitative metrics based on ratios, for example, you can also try to take unstructured data like text and put structure around it and analyze the structured data itself.\u201d\u00a0<\/p>\n

Meaning that as AI improves, along with people\u2019s ability to engage it through carefully crafted prompts, our insight into a company\u2019s operations and management thinking could meaningfully improve. (A prompt is when we describe a task that we want an AI program, say ChatGPT, to perform).\u00a0 \u00a0<\/p>\n

\u201cChatGPT is an incredibly transformative idea,\u201d Lewis says. \u201cAnd one of the things that you can do with something like that (in terms of preparing a 10-K, for example) is you could literally draft the text and then push it through ChatGPT and ask it write it more elegantly \u2014 for example like a\u00a0Wall Street Journal\u00a0article. If your intentions are good, this could help somebody come up with even more clear, transparent ways of describing performance.\u201d\u00a0<\/p>\n

But Lewis cautions that \u201cClever earnings management schemes arise from operational problems and a desire by management to hide them. It is unclear how generative AI would be very helpful at the margin. I think \u2018solutions\u2019 would be idiosyncratic to the firms\u2019 internal control systems.\u201d<\/p>\n

Meanwhile, let\u2019s return to my earlier point that technology is agnostic.\u00a0When current SEC Chairman Gary Gensler was a professor at MIT, he wrote\u00a0this paper\u00a0warning of the dangers of AI.\u00a0Gensler warned that AI presents a double-edged sword, \u201cproviding previously unseen predictive powers enabling significant opportunities for efficiency, financial inclusion, and risk mitigation.\u201d But, he added, \u201cBroad adoption of deep learning, though, may over time increase uniformity, interconnectedness, and regulatory gaps.\u201d<\/p>\n

One risk, he noted, was that AI-powered trading algorithms could cause markets to crash, if programmed to think and operate in the same way.\u00a0\u201cThere simply are not that many people trained to build and manage these models, and they tend to have fairly similar backgrounds,\u201d Gensler wrote. \u201cIn addition, there are strong affinities among people who trained together: the so-called apprentice effect.\u201d\u00a0<\/p>\n

Others call this dynamic the \u201cherd effect,\u201d when markets stampede in one direction or the other.\u00a0We\u2019ve already seen what can happen when algos are designed to do the same thing. In 2010 \u2014 a lifetime ago in terms of both technology and the markets \u2014 an event known as a \u201cflash crash\u201d occurred, sending markets into a steep plunge and causing hundreds of billions of dollars\u00a0\u00a0to evaporate in minutes before recovering nearly as quickly.\u00a0<\/p>\n

Regulations were put in place after the crash, following the well-worn path of regulators fighting the last war, as opposed to trying to anticipate the next one. It is this anticipation that we should now focus on with regard to artificial intelligence. AI\u2019s power has advanced faster than our ability to understand, much less attempt to control it.\u00a0 \u00a0<\/p>\n

More:<\/strong> How to defend yourself and stay safe against AI fraud and identity theft<\/p>\n

Also read: <\/strong>Why AI-generated stock picks won\u2019t beat the market<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial intelligence, which has exploded into the public eye over the past year, certainly falls into this category. In the field of finance, this dazzling technology offers both […]<\/p>\n","protected":false},"author":1,"featured_media":14320,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-53305","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nOpinion: Will AI prevent the next Enron-level market blowup or be the cause? | iFintechWorld<\/title>\n<meta name=\"description\" content=\"I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=53305\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Opinion: Will AI prevent the next Enron-level market blowup or be the cause? | iFintechWorld\" \/>\n<meta property=\"og:description\" content=\"I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial\" \/>\n<meta property=\"og:url\" content=\"https:\/\/ifintechworld.com\/?p=53305\" \/>\n<meta property=\"og:site_name\" content=\"iFintechWorld\" \/>\n<meta property=\"article:published_time\" content=\"2023-08-26T16:50:09+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-08-26T16:50:11+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/05\/1685134738_social.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"640\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"News Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"News Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/ifintechworld.com\/?p=53305#article\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=53305\"},\"author\":{\"name\":\"News Room\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\"},\"headline\":\"Opinion: Will AI prevent the next Enron-level market blowup or be the cause?\",\"datePublished\":\"2023-08-26T16:50:09+00:00\",\"dateModified\":\"2023-08-26T16:50:11+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=53305\"},\"wordCount\":858,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"keywords\":[\"Featured\"],\"articleSection\":[\"Investing\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/ifintechworld.com\/?p=53305#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/ifintechworld.com\/?p=53305\",\"url\":\"https:\/\/ifintechworld.com\/?p=53305\",\"name\":\"Opinion: Will AI prevent the next Enron-level market blowup or be the cause? | iFintechWorld\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/#website\"},\"datePublished\":\"2023-08-26T16:50:09+00:00\",\"dateModified\":\"2023-08-26T16:50:11+00:00\",\"description\":\"I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial\",\"breadcrumb\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=53305#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/ifintechworld.com\/?p=53305\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/ifintechworld.com\/?p=53305#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/ifintechworld.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Opinion: Will AI prevent the next Enron-level market blowup or be the cause?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/ifintechworld.com\/#website\",\"url\":\"https:\/\/ifintechworld.com\/\",\"name\":\"Repay Down\",\"description\":\"Latest Personal Finance News, Tips and Updates\",\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/ifintechworld.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/ifintechworld.com\/#organization\",\"name\":\"Repay Down\",\"url\":\"https:\/\/ifintechworld.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"width\":558,\"height\":90,\"caption\":\"Repay Down\"},\"image\":{\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\",\"name\":\"News Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"caption\":\"News Room\"},\"sameAs\":[\"https:\/\/ifintechworld.com\"],\"url\":\"https:\/\/ifintechworld.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Opinion: Will AI prevent the next Enron-level market blowup or be the cause? | iFintechWorld","description":"I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/ifintechworld.com\/?p=53305","og_locale":"en_US","og_type":"article","og_title":"Opinion: Will AI prevent the next Enron-level market blowup or be the cause? | iFintechWorld","og_description":"I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial","og_url":"https:\/\/ifintechworld.com\/?p=53305","og_site_name":"iFintechWorld","article_published_time":"2023-08-26T16:50:09+00:00","article_modified_time":"2023-08-26T16:50:11+00:00","og_image":[{"width":1280,"height":640,"url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/05\/1685134738_social.jpeg","type":"image\/jpeg"}],"author":"News Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"News Room","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/ifintechworld.com\/?p=53305#article","isPartOf":{"@id":"https:\/\/ifintechworld.com\/?p=53305"},"author":{"name":"News Room","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61"},"headline":"Opinion: Will AI prevent the next Enron-level market blowup or be the cause?","datePublished":"2023-08-26T16:50:09+00:00","dateModified":"2023-08-26T16:50:11+00:00","mainEntityOfPage":{"@id":"https:\/\/ifintechworld.com\/?p=53305"},"wordCount":858,"commentCount":0,"publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"keywords":["Featured"],"articleSection":["Investing"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/ifintechworld.com\/?p=53305#respond"]}]},{"@type":"WebPage","@id":"https:\/\/ifintechworld.com\/?p=53305","url":"https:\/\/ifintechworld.com\/?p=53305","name":"Opinion: Will AI prevent the next Enron-level market blowup or be the cause? | iFintechWorld","isPartOf":{"@id":"https:\/\/ifintechworld.com\/#website"},"datePublished":"2023-08-26T16:50:09+00:00","dateModified":"2023-08-26T16:50:11+00:00","description":"I\u2019m of the view that most technology is at its essence, agnostic. Whether it is used for good or ill depends upon the intent of the user.\u00a0 Artificial","breadcrumb":{"@id":"https:\/\/ifintechworld.com\/?p=53305#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ifintechworld.com\/?p=53305"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/ifintechworld.com\/?p=53305#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/ifintechworld.com\/"},{"@type":"ListItem","position":2,"name":"Opinion: Will AI prevent the next Enron-level market blowup or be the cause?"}]},{"@type":"WebSite","@id":"https:\/\/ifintechworld.com\/#website","url":"https:\/\/ifintechworld.com\/","name":"Repay Down","description":"Latest Personal Finance News, Tips and Updates","publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/ifintechworld.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/ifintechworld.com\/#organization","name":"Repay Down","url":"https:\/\/ifintechworld.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","width":558,"height":90,"caption":"Repay Down"},"image":{"@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61","name":"News Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","caption":"News Room"},"sameAs":["https:\/\/ifintechworld.com"],"url":"https:\/\/ifintechworld.com\/?author=1"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/53305","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=53305"}],"version-history":[{"count":1,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/53305\/revisions"}],"predecessor-version":[{"id":53306,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/53305\/revisions\/53306"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/media\/14320"}],"wp:attachment":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=53305"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=53305"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=53305"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}