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What might Scarlett Johansson and romcoms teach us about artificial intelligence and systemic risk in our capital markets?
There was a movie back in 2013 called “Her” in which Scarlett Johansson plays Samantha, an AI-powered virtual assistant. Samantha forms a romantic bond with Theodore, a human played by Joaquin Phoenix.
Late in the movie, Theodore is shaken when he gets an error message: “Operating System Not Found.” Upon Samantha's return, he asks if she's interacting with others. Yes, she responds with 8,316 others. And shortly thereafter she goes offline for good.
Well, what might this have to do with our economy? Well, what we've seen in our economy is how one or a small number of tech platforms can come to dominate a field. We all know this. Search engines, retail platforms, cloud providers and on.
We're bound to see the same develop with artificial intelligence. In fact, the three largest cloud providers are already affiliated with the leading generative AI companies.
What does this mean for finance? Well, AI is already being used for call centers, account openings, compliance programs, trading algorithms, sentiment analysis, and more. It has fueled a rapid change in the field of robo-advisers and brokerage apps.
Thousands and thousands of financial entities are looking to build downstream applications, relying on what is likely to be but a handful of base models upstream. A base model or data aggregator thus may send a similar signal to many individual actors, like Samantha, leading many of them to make similar decisions, like Theodore. Such network interconnectedness, such monocultures, are the classic problems that lead to systemic risk.
That brings me back to Samantha and Her. Imagine it wasn't Scarlett Johansson, but it was some base model or some data source on which 8,316 financial institutions were relying. That's what we may face in finance. Thus, if they go offline or they send a signal that everybody relies upon, AI may play a central role in the after-action reports of a future financial crisis.
The challenges to financial stability that AI may pose in the future will require a lot of new thinking. Regulators, market participants, I believe, need to think about what it means to have the dependencies of potentially 8,316 brokenhearted financial institutions on an AI model or data aggregator.
Let's do our best to keep that heartbreak out of our capital markets.
