Updating the Philosophy Behind the Internet of Things (IoT)

A Little Bit of Money

Thought Experiments on Cross-Border Payments - Of Couriers, Bankers, and Bitcoiners

Series 18: Updating the Philosophy Behind the Internet of Things (IoT)

Robo-advisors are trendy marketing tools of investment funds

IoT isn’t only about vending machines that communicate with their suppliers to restock their wares. Nor is IoT only about ingenious sensors managing our homes automatically, or remote devices that conveniently rewire our consumer electronics. By definition, bankers have been using what we currently know as IoT -- networks of objects and “Big Data” -- since at least 1998. The wonders of computer science have been harnessed by the financial industry in myriad ways – algorithms and quantitative trading practices represent the art of the deal. Robo-advisors have become a trendy marketing tool in high-profile investment funds lately.

High-frequency trading robots hiding behind glass facades

The makers of such services are supposed to deem Asimov’s Three Laws of Robotics more than noteworthy (i.e. “no harm to humans”). Only reality is often different. The administrators of global wealth feel comfortable hiding their faces behind anonymous glass façades while delegating their responsibilities to high-frequency trading robots – which are not unlike combat drones. The guy behind the control panel washes his hands of the action. In this respect, the Internet of Things (IoT) is a reality with a downside. In theory, computers could abstain from unethical trading activities. But humans have to first enlighten the machines. I believe we’re better off keeping the human factor in mind.

Rose-colored attitude towards financial markets

The philosophy of high-frequency trading is purely technical. It excludes the human factor. This concern is often voiced by progressives – notably by the new digital generation, and they have grounds for their argument. In many countries, a rose-colored attitude towards financial markets and regulatory bodies makes it possible for investment bankers to conduct casino-like activities in which they, themselves, are “the House.”

Investment banks are disconnected from average folks

It seems that people working in investment banks are entirely disconnected from the average folks on “Main Street.” Developing trust and sharing risk is not something that’s commonly considered an important aspect of business relationships in this arena. Consequently, some bankers treat their clients, trading partners, and counterparties as lethal enemies whenever risk becomes known and profit is at stake.

Dump Trump Economics

Not surprisingly, the Trump administration plans to abolish essential parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Now, I realize that banks are not running charities. Surpluses aren’t a sure thing when you’re operating in the social finance niche. That is why financial institutions and everyone else needs to maximize profits. However, in an artful deal, do profits really have to go hand-in-hand with counterparty losses, meaning all the talk about win-win is just verbiage?

A robot may not harm humanity

Can robots be programmed to learn certain behavioral patterns? Yes, but they have a lot to learn about markets and the theories behind them. Also, the endless stream of regulatory requirements appears to be a Herculean task for both men and robots. In spite of that, Golem-style machines require human input prior to taking action. The next generation of hedge fund stars is already working on sophisticated concepts to make robots smarter and more profitable. Astonishingly enough, some robots run trading programs based on goodwill. Sharia-compliant or carbon-compliant applications are real-world examples of these kinds of interconnected things. To date, ethical living and sustainable investment decisions are personal choices that can be etched into the inner workings of financial robots.

 

To be continued. Further Reading:

Anastasia Michailaki. “Mixed Reality Through the Internet of Things and Bitcoin: How Laws Affect Them.” In e-Democracy, Security, Privacy, and Trust in a Digital World, pages 165-169, 2014.

PR January 2017, European Parliament, "Robots: Legal Affairs Committee calls for EU-wide rules", http://www.europarl.europa.eu/news/en/news-room/20170110IPR57613/robots-...

Isaac Asimov. I, Robot, "Laws of robotics - Three Laws of Robotics", 1950

Alexandra Stevenson. "The Next Generation of Hedge Fund Stars: Data-Crunching Computers", November 2016, New York Times, https://www.nytimes.com/2016/11/15/business/dealbook/the-next-generation...

 

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