Most of us are well aware of the problem of human labor being displaced by technology. The Thought Infection blog recently posted an informative overview of how even jobs we might not immediately think of as being at risk of obsolescence are steadily being encroached upon by technology. In this follow up article, he explains how automation has an especially destabilizing effect on the financial sector and economic system.
The advent of algorithmic trading extends the game that has always existed in markets, but now the speed is faster, the stakes are higher and we can’t be sure who is in control.
The manipulation abilities of trading algorithms may already (and if not, soon will) extend beyond this kind of inter-algorithmic effects. Given that trading algorithms can act on human informational sources, such as Twitter, as news is released, it is not outlandish to imagine that these algorithms could also be producing information in an effort to manipulate the market. Given that algorithms are becoming better at turning basic information into natural language, it seems possible that an algorithm could be designed to Tweet out false information about a company to try to depress the stock price.
If we take the ketchup manufacturer again and we imagine they are in a precarious position due to a new bill to remove subsidies for tomato growing. Imagine a bunch of tweet/comment/news bots aimed at pushing the public dialogue to make it seem that the subsidies are going to be removed. If massively parallelized, this kind of attack on public sentiment could have a significant effect on the ketchup manufacturer and provide an opportunity for major profits. I think it’s likely this kind of algorithmic sentiment manipulation is already happening on some level.
Even this kind of sentiment manipulation is only a drop in the bucket compared to what may become possible in the near future. The astounding profits which can be made in this kind of algorithmic trading is driving huge investment in artificial intelligence. In the near future, algorithmic traders will be capable of much more complex manipulations to try to move market prices.
…Perhaps by identifying those congressmen who are on the fence about subsidies, a targeted campaign to manipulate the opinions of those in said congressman’s district could have a real effect on the outcome for ketchup manufacturers. This may seem a bit ridiculous, but even a tiny effect on the perceptions and opinions of one individual can make a big difference if spread across a wide enough group.
Read the full article here: http://thoughtinfection.com/2014/01/05/the-deep-end-of-decoupling-the-existential-threat-of-algorithmic-trading/
What he speculates could be our greatest threat in the future is not Terminator-like cybernetic weapons but “an army of Gordon Gekko-bots capable of manipulating every aspect of our legal and political systems in an aim to maximize market profits.”