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The phrase “confirmation bias” refers to information that confirms a person’s beliefs. There’s a lot of it in the investment industry.
Ever since the very first investment strategy was formulated, confirmation bias has been circulating the financial industry, inciting people to think, “Well, if it’s worked before, why wouldn’t it work again now?”
This is not altogether a bad thing. When it comes to putting money into an investment portfolio, you’re attempting to recognize trends and patterns that have historical significance. You’re hoping that, if you apply a particular strategy to these pre-existing trends, you will achieve positive results.
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In theory, you’re actively favoring information that has come before. And you are applying it to events that are happening now.
This, in many ways, is why the emergence of AI is such a revolution.
AI in the Investment Industry
While tradition plays a big role in investment decisions, it also plays a big role in wealth management. This means that banks, brokers, wealth managers, and financial advisors all have a specific way of doing things.
For the record, that isn’t implying companies actively narrow their decision-making. Most of the time, confirmation bias in the investment industry, as elsewhere, is a subconscious decision. But it does mean there is a risk to both experienced and amateur investors who are attempting to build strong portfolios.
AI, however, takes those risks away. Take a look at the company FINQ, for instance. In their own words, they are shaking up the “old-fashioned investment system” by pioneering an alternative, data-driven route into the market.
Any investor can utilize this alternative. This is because the AI engine will collect the data, identify patterns, unwrap complex assets, and gain scientific insights to offer the right solutions. When it comes to navigating the investment landscape, the reasons why millennials, Gen Z, and Gen X are embracing FINQ is all down to the convenience, transparency, and innovative solutions that it promises to offer.
One of the most exciting things about AI in the investment industry is that it may be less likely to succumb to confirmation bias.
Because it continuously learns from the data it collects, it will forever be working out the best ways to navigate the market. Therefore, it will have the capabilities to innovate its strategies. In the future, it may even come up with strategies that nobody has thought of yet. The potential with this kind of technology is endless. Moreover, there’s no telling how much bigger the investment market will get due to its integration.
For the future of the investment industry, the effects on investors will undeniably be positive. For wealth management practices, however, it could go either way. Either traditional wealth management companies will have to change the way they operate, integrating these AI tools sufficiently into their system, or they will likely be left behind in the shadows of their new competition.
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However, as we mentioned previously, changing traditional practices can be hard. So it remains to be seen whether more companies or fewer will rise to the challenge.
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