Artificial Intelligence for Asset Management and Investment

Chapter 2AI and Business Strategy

THE AI REVOLUTION IS NOT AN EXTENSION of the digital revolution. There are some clear and distinct differences (Makridakis, 2017). Business strategy is not static. It is dependent on the changes in the underlying variables. But certain times and technological revolutions are far more extraordinary than others (Perez, 2002). In fact, I have no hesitation in stating that the AI revolution will launch the most transformational times in human history. The AI revolution is unleashing a powerful economic change that will require monumental amendments in the way business strategy is approached. Understanding those competitive dynamics is critical for developing an intuition about how to develop your firm's strategy.

WHY STRATEGY? THE RED BUTTON

In 2016, when the AI fever was just starting to pick up the pace, I had the opportunity to talk strategy with the co-founder of what he described as the world's first automated hedge fund. In a typical Silicon Valley's passionate and visionary entrepreneurial style, he gave me the analogy of OODA loop, which was a model used to explain the success of the most successful fighter pilots in dog fights in the Korean War. OODA stands for Observe, Orient, Decide, Act. It is a loop where, after you act, you observe your environment again, reorient, decide, and act. Basically, you go through these loops, and you make your trades. Human traders, he argued, are constantly looking, second-guessing, checking their current ...