The Future of Investing: GameStop, Artificial Intelligence and Social Media

The Future of Investing: GameStop, Artificial Intelligence and Social Media

The recent GameStop saga—in which “an army of amateur investors spurred the value spike” after organizing on the social networking site Reddit—sends the clear message that social media can drive today’s markets. This according to a recent article in CFA Institute.

The problem, the article argues, is that “with social media, theoretically anyone can exercise the power that was not so long ago the privilege of the very few: to influence—or manipulate—opinion and get away with it.” It adds that “the scrutiny surrounding the social media giants is the established system’s reaction to their growing influence. The balance of power has shifted and with it the future of investing and social media.”

The main players in this power shift, the article notes, is not just governments and corporations, but also algorithms, artificial intelligence (AI) and the folks behind them, who have more influence than we may realize. It explains that every social media platform uses algorithms to “address requests and determine which data—pictures, posts, videos, etc.—to serve to its users” and tailors those algorithms to its mission of maintaining and increasing audience engagement.

In this iterative process, an algorithm “performs the same function over and over again, and the accompanying AI system examines the results, and then perfects them based on the engagement criteria. After a few million tests, the algorithm becomes incredibly effective at creating engagement among the millions it reaches.”

The article points out, however, that while social media can drive markets, algorithms and AI also “provide plausible deniability”—in other words, social media companies can blame events on “some mysterious technological aspect of their business” which creates confusion, resentment and serves to “erode our trust in tech, AI, and social media and create more cynicism about the markets.”

All of this can be addressed, the article concludes, through education about AI’s functions and flaws as well as transparency on the part of social media companies who, it notes, must “show a good faith effort to dispense with secrecy and be forthright with the public in the wake of major social media-influenced events.” The same, it argues, holds true for regulators.