1

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

What is intelligence? and why discovery of the correct answer will completely change finance

Chi Lee

_

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

What is intelligence?

Engineer build it from scratch to

understand the principles

Reverse Engineer study what’s there already

and test it

2 scientific approaches

2

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Engineering intelligence, e.g.

Chess

3

Deep Blue (IBM custom server)

vs Kasparov (World Champion) 1996 Lost 2-4

Deeper Blue (IBM upgraded)

vs Kasparov 1997 Won 31

2-21

2

Deep Fritz (Windows software)

vs Kramnik (World Champion) 2006 Won 4-2

Since 2007 a Windows PC is basically unbeatable

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

But

Is there a difference between looking intelligent and being intelligent?

Yes there is

4

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

the Chinese Room argument (Searle, 1980)

中国人

Englishman

中国

Very long, complicated (hypothetical) rulebook on putting together Chinese pictorials given other Chinese pictorials. Written in English.

5

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Looking Intelligent is Weak artificial intelligence

Being Intelligent is Strong artificial intelligence

(Searle)

6

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

What about Reverse Engineering?

Human Brain

“Hardware”

Uses 20W of power to run

and does 100 x 1012 “calculations” per second

which implies 2 x 1019 calculations per kWh

or 21 trillion calculations per calorie

7

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

2E+19

2030

follow arrows around

less than two decades away

How close is computing hardware?

Source: Koomey, Jonathan G., et al. "Implications of historical trends in the electrical efficiency of computing." Annals of the History of Computing, IEEE 33.3 (2011): 46-54.

Cal

cula

tio

ns

per

kW

h (

log 1

0)

8

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Human Brain

Understanding the “Software”

Single neuron model 1943 McCulloch and Pitts

Neural network (bunch of neurons) 1958 Rosenblatt

Multi-layer neural networks 1974 Werbos

Deep learning 2007 Hinton

for the very first time, we are seeing elements of Strong artificial intelligence

9

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

BTW

Intelligence is required for consciousness Consciousness is not required for intelligence

Human consciousness (better description is spirit or soul) is a deeply human property

Purpose, faith, creativity, feelings and desires are all seated in consciousness

True “artificial consciousness” is likely long way away

10

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Deep learning and some related technologies (Strong artificial intelligence)

change everything

Automated Driving

Driverless cars, planes and boats

Automated Visual and Verbal Translation

No language barriers

Humanoid robots (finally)

No manual labour

many, many others … education, healthcare, government …

11

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

know this very well and positioning ahead

most of the economy and the world do not understand yet … field of finance has barely started

12

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Acquisition date Company Business Country Price Used as or integrated with

24-Oct-14 Revolv Home Automation US Nest Labs

23-Oct-14 Dark Blue Labs Artificial Intelligence UK £tens of millions Google DeepMind

23-Oct-14 Vision Factory Artificial Intelligence UK £tens of millions Google DeepMind

17-Aug-14 Jetpac Artificial intelligence, image recognition US —

20-Jun-14 Dropcam Home Monitoring US $555m Nest Labs

16-May-14 Quest Visual Augmented Reality US — Code Project, Google Translate

14-Apr-14 Titan Aerospace High-altitude UAVs USA — Project Loon

26-Jan-14 DeepMind Technologies Artificial Intelligence UK $500m Google X

13-Jan-14 Nest Labs, Inc Home automation USA $3.2bn Google

10-Dec-13 Boston Dynamics Robotics USA — Google X

7-Dec-13 Bot & Dolly Robotic cameras USA — Google X

6-Dec-13 Holomni Robotic wheels USA — Google X

5-Dec-13 Meka Robotics Robots USA — Google X

4-Dec-13 Redwood Robotics Robotic arms USA — Google X

3-Dec-13 Industrial Perception Robotic arms, computer vision USA — Google X

2-Dec-13 SCHAFT, Inc. Robotics, humanoid robots JPN — Google X

2-Oct-13 Flutter Gesture recognition technology USA $40m Google, Android, Google X

How we know that Google knows

Acquisitions made by Google related to artificial intelligence in the previous 12 months

Source: Wikipedia

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Software can now excel at playing computer games by tracking their game score and learning to play by (literally) looking at the screen and pressing the controls using something called Deep Reinforcement Learning Software could feasibly look at Bloomberg screens and browse the internet and learn to trade by issuing trades like a trader within 10 years from now, and likely do it better than any human trader within 20 years

14

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Sellside

Fully automated trading (no Traders) for all liquid securities Structurers will need to be proficient in artificial intelligence Salespeople remain critical to the business and sales-traders remain key to trading illiquid securities

Future

Why? Because creativity in keeping clients happy comes from human consciousness and not from (just) intelligence

15

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Buyside

Fully automated investing in liquid strategies Asset managers will need to be proficient at artificial intelligence Private equity and illiquid investments remain fully people driven (except analysts will have some roles automated) Client Directors and Specialists remain critical to the business for interacting with clients

Future

Why? Because creativity in keeping clients happy comes from human consciousness and not from (just) intelligence

16

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

17

Chi Lee

Portfolio Manager

Chi Lee was previously at GAM as Portfolio Manager and Head of Investment Risk. He was responsible for developing, launching and lead managing all alternative risk premia strategies at GAM until he left in November 2014. He successfully grew the strategy from an initial USD50m seed investment in 2012 to USD1bn in institutional AUM within two years as a result of developing and using new, cutting edge quantitative techniques.

Prior to joining GAM in January 2008, he originated and structured credit derivatives on the fixed income trading floor with Morgan Stanley, and before that, he was head of quantitative research with KGR Capital.

He was awarded a BA with First Class Honours in Computer Science from Cambridge University and an MBA with Honors in Finance from the Wharton School, where he was a Fulbright Scholar. He is also a Certified FRM with the Global Association of Risk Professionals.

Wh

at is

inte

llige

nce

?

No

v 2

01

4

Co

nta

ct c

hi@

autr

a.o

rg t

o d

iscu

ss a

nyt

hin

g o

n t

hes

e sl

ides

Close & Discuss