by Ray Ryan, CFA
It is probable that a child born today will never need to learn how to drive a car. With the advent of autonomous driving vehicles, skills such as driving a car could be rendered obsolete because of technological advances. While we marvel at the pace of innovation and wonder about its development, the key ingredient in artificial intelligence (AI) remains rather mundane – i.e., tiny bits of digital data. Without the ability to quickly collect and analyze mountains of data, AI would not be possible. For this reason, companies have invested billions in pursuit of an information advantage. In certain respects, global economies have entered a digital arms race where data has supplanted oil as the most important commodity.
Purchasing a book over amazon.com or conducting a Google search are wonderfully efficient services that have benefited consumers, students, researchers, and the general public. Technology has fostered greater transparency while disintermediating numerous industries, crimping profit margins for producers but offering discounted prices to consumers. Companies have been forced, in turn, to invest in technology to improve efficiency and preserve margins. The impact of technology can be viewed as a virtuous cycle of continuous investment focused on eliminating inefficiencies.
Behind some of the services we now take for granted, there are powerful engines at work that collect and analyze data at the speed of light. Algorithms (i.e., mathematically based logic sequences, or rules, embedded in computer programs) sift through reams of data to detect patterns and signals. That information is then processed to offer recommendations or to make decisions in less than the time required to blink an eye. In the case of autonomous driving vehicles, sensors placed throughout a car collect data and transmit the information to sophisticated microprocessors programmed to direct various mechanical systems (e.g., brakes). As greater amounts of data are collected, the algorithms become more accurate, and the car’s autonomous driving system becomes more efficient and reliable.
Users of technology (i.e., everybody) are, in effect, producers of data, and data generation often occurs unwittingly. By accepting a trade-off in privacy and security for greater convenience, the typical smart phone user is generating valuable information for the companies that provide apps. Each purchase over amazon.com and each search on Google provides those companies with incremental information about you, the user of its service. With each purchase, amazon.com’s future recommendations will become more targeted toward your preferences. With each search, Google’s algorithms will be more efficient in future searches.