Artificial Intelligence is and continues to change the way we see things and the way we do things. For much of our lives there has been conventional wisdom, there are strong elements why conventional wisdom has lasted, but is it the best approach? In a recent book written by Nick Polson and James Scott titled AIQ published by St. Martin’s Press, NY, 2018, the authors examine artificial intelligence – what it is, how it works, where it comes from and how to harness its power for a better world. Note the optimism in the authors expectation, AI can help make the world a better place.

One of the things the examination of large data can do is to look for variability or anomalies. As computers have speeded up and we look to 5G on the phone, the ability to find differences can make decision making easier.  The basic elements are:

data collection: several measurements are taken of some underlying process

averaging: all the measurements are average to provide a snapshot of the process

decision-making: is the average close what you expect and what is outside the bounds of normal variability?

The basics over the centuries has remain the same: to detect an anomaly you have to understand variability.

The author’s use  credit card companies as an example. There has always been some element of fraud in the system. However with the help of modern algorithms and modern supercomputing infrastructure, PayPal has lowered its fraud rate to 0.32% of revenue. The system uses deep learning to compare every transaction with your own past behavior, as well as the behavior of other users similar to you. On the basis of that comparison which uses other features, the system produces a fraud score  to accept or decline the transaction all within a fraction of a second.

Linking to dividend paying stocks, as systems improve so does detecting fraud. If you own companies that offer credit you need to use the fraud write offs as a comparison to find the best alternative. Fraud is money lost, if a company can lessen the fraud more revenue flows to the company and the shareholder.

There are more questions than answers, till the next time – to raising questions.