Product idea: a LLM trained separately from mainline LLMs that anticipate market trends by analyzing how mainline LLMs will invest. As retail investors will probably use mainline AI for decisions going forward , one could get an edge.
"The AI-driven Market Hypothesis"
Please let me know where I should pick up my Nobel prize.
There are surely prize-worthy discoveries to be made about the long term behaviour of any system that can introspect previous discoveries and adjust it's behaviour.
I suspect that economics and psychology are both examples of these systems, and that, long term, these system will alter behaviour to thwart previous observations.
Economics requires observers to hoard discoveries and insights, so they can enrich themselves while the insights hold.
at what point do we call this a game instead of economics? whats the benefit to society if the markets are just AI bots trying to out-maneuver one another?
Relatedly: I suspect LLMs are influencing baby names. If you ask Claude or ChatGPT for its favorite baby names, you'll get baby names that right now are skyrocketing in terms of popularity.
Would you not then also copy the investments? Or are you trying to inverse the trades by an unpredictable time factor reasoning that thanks to AI the underlying stock is over- or underpriced?
A lot of algorithmic trading is short-term, essentially trying to guess what other parties may be selling or buying so that you can front-run them and then collect a fee. Kinda like ticket scalping, except we accept it and have a retro-justification for why it's good ("improving liquidity").
Or, in the best case, you're trying to mine signals few days before earnings or some other big story and bet on the directional outcome of that.
Fully-algorithmic long-term trading is of dubious benefit simply because that's driven to a much greater extent by geopolitics and macroeconomic trends, unforeseen scandals, successful product launches, and so on. As an example, you can believe that AR / VR is the future; I don't disagree. And in 2013, you might have inferred that Google is working on a revolutionary miniature AR headset. But you would not have made money if you bet on that turning out to be a hit. So even if you had a way to automate this bet, it would not have been a good bet.
I was under the impression that front-running was something that happened in the span of seconds (or milliseconds), not a timeframe compatible with LLM inference time.
I know this is tongue-in-cheek, but I think your idea could actually work, but not in financial markets. (The "keynesian beauty contest" of trying to predict what others think been played out to death there.)
You could train a model to anticipating scientific trends. Or policy trends. Others will definitely use mainline LLMs to make decisions there, so they may be more predictable now!
You don’t even have to limit it to machine learning, the definition of forecasting is isomorphic to the definition of modeling, which, with the dilution of the term AI, is also isomorphic to the definition of AI.
More simply:
- forecasting = modeling = AI
Edit: I’d even throw statistics into that extended equality, meaning that Bayes, Bernoulli and even the fellow named John Gaunt have a strong case for having invented AI.
For statistical time series forecasting, yes. This is for judgment-based forecasting, a somewhat different problem. It often involves, e.g. estimating the probabilities of one-off future events, which time series forecasting models aren’t suited for.
Right. What's really surprising is how much better the best are. Human superforecasters, and prediction markets are surprisingly accurate too.
We could live in a world where things are much more chaotic, and the best humans (or AIs) would only be slightly better than chance. Evidently the world we live in is pretty darn predictable.
Yes, and if the things I learned in my university class on the subject still holds, forecasts are incredibly sensitive to modeling decisions such as what independent variables you choose and how you believe they might mathematically relate to the outcome variable. It’s not a zero skill thing, but if anyone’s found a way to consistently mitigate the luck factor then I’d expect them to be wealthier than Elon Musk by now.
And there’s always a huge amount of variation that you simply can’t model, for whatever reason, and is therefore functionally a random factor.
I don’t want to say too much because this isn’t something I went on to actually do after school so I’m way out of my lane here, but I can see room for this to be more akin to “AI wins parcheesi tournament” than it is to “AI wins chess tournament.”
As someone who started working on AI forecasting 3 years ago, I can confidently say that most people did not expect AI to beat Tetlock's superforecasters, Metaculus pros, or prediction markets as quickly as it did.
It will be interesting to see if this changes because presumably AI is using very predictable historical models, but it seems like the climate is shifting into something unseen that we won't have models for?
If 10,000 people guess 10,000 fair coin flips each one of them will get more guesses right than any of the others, one of them will get fewer guesses right than any of the others, and the gulf between the two is likely to be over 4 standard deviations wide. I'm certain that I, being an untutored schmuck from Pittsburgh and having thought of this almost immediately after reading about this contest, cannot be the first person to realize this is a potential problem for a forecasting contest. But I can't find anything they've done to mitigate that problem. Can anyone clue me in?
I don't understand your analogy. Are you just suggesting that luck plays too large a role in this contest? Clearly there is some "skill" or ability factor because AI's have been scoring higher and higher each year. Also, they make reference to superforecaster humans, who are presumably consistently better at forecasting than their peers.
So I can guess the AI companies can stop with their plans to infest AI with ads and they'll instead fully fund themselves by using their AI to gamble on stocks and the prediction market right? Surely the chatbots will just print money!
At the risk of sounding extremely naieve i have a question for the Wall St / quant / HFT folks lurking here ... but how hard would it actually be to brute force the math/algos behind Medallion Fund (or something in that general class) or even some of the average quant funds
I know it’s not just the math but execution, infrastructure, risk management, data, colocation (if ur an HFT) etc ... but LLMs seem like a pretty powerful apparatus for running experiments that .. a few years ago would have required fairly deep multidisplinary skills across coding .. stats .. and math ..
So assuming you have decent intuition for ideas .. how difficult would it actually be to reverseengineer / rediscover some of the underlying stuff?
It’s actually really easy to make models that can predict “will the market move up or down in the next X microseconds” that score above 50% accuracy. It’s just that there are so many ways to do it that overfitting is practically guaranteed and most models don’t work when actually trading against the market, which reacts to you. Doing those trades well requires more understanding of the underlying mechanisms, not to mention access to data sources that the public simply doesn’t have.
I'm no quant/hft/wall st person, but iiuc a lot of those trades happen in dark pools or by other means to make the positions they take hard to track. meaning you can't go get the receipts of every trade made by medallion fund nor some competitor
AI won't replace Ann Wroe at The Economist. It is difficult to appreciate until you've read a few, but Ann Wroe's approach transformed The Economist's obituary section into one of the most widely read features in international journalism.
Cramer is infamous for being a terrible forecaster, and still has a large audience. Which tells you there is more at play than being good at forecasting, you also have to sell a good story
"The AI-driven Market Hypothesis"
Please let me know where I should pick up my Nobel prize.
I suspect that economics and psychology are both examples of these systems, and that, long term, these system will alter behaviour to thwart previous observations.
Economics requires observers to hoard discoveries and insights, so they can enrich themselves while the insights hold.
It's derivatives all the way down
Maybe you could settle for the FIFA Economics Prize.
Or, in the best case, you're trying to mine signals few days before earnings or some other big story and bet on the directional outcome of that.
Fully-algorithmic long-term trading is of dubious benefit simply because that's driven to a much greater extent by geopolitics and macroeconomic trends, unforeseen scandals, successful product launches, and so on. As an example, you can believe that AR / VR is the future; I don't disagree. And in 2013, you might have inferred that Google is working on a revolutionary miniature AR headset. But you would not have made money if you bet on that turning out to be a hit. So even if you had a way to automate this bet, it would not have been a good bet.
You could train a model to anticipating scientific trends. Or policy trends. Others will definitely use mainline LLMs to make decisions there, so they may be more predictable now!
More simply:
Edit: I’d even throw statistics into that extended equality, meaning that Bayes, Bernoulli and even the fellow named John Gaunt have a strong case for having invented AI.I wouldn't go that far. Humans can forecast by modeling with their wetware, nothing "A" about it.
Obviously the best humans are better than average, but this isn't all that surprising to me?
We could live in a world where things are much more chaotic, and the best humans (or AIs) would only be slightly better than chance. Evidently the world we live in is pretty darn predictable.
And there’s always a huge amount of variation that you simply can’t model, for whatever reason, and is therefore functionally a random factor.
I don’t want to say too much because this isn’t something I went on to actually do after school so I’m way out of my lane here, but I can see room for this to be more akin to “AI wins parcheesi tournament” than it is to “AI wins chess tournament.”
Hard to study this, obviously!
That branch of religion has better uniforms anyway.
I know it’s not just the math but execution, infrastructure, risk management, data, colocation (if ur an HFT) etc ... but LLMs seem like a pretty powerful apparatus for running experiments that .. a few years ago would have required fairly deep multidisplinary skills across coding .. stats .. and math ..
So assuming you have decent intuition for ideas .. how difficult would it actually be to reverseengineer / rediscover some of the underlying stuff?
Whether they draw on AI or other humans seems immaterial to the quality of their reporting.