It was fascinating to chair a private, invitation-only roundtable with the legendary Nicholas Taleb at the AIM Summit in London last week. His important insights have challenged many aspects of conventional wisdom. The focus of our discussion was the very topical issue of AI, although we certainly did stray into a number of other matters!

Within the context of the explosive growth of the AI sector, we looked at the longer-term implications of several possible future trajectories. In fact, the view of Geoffrey Hinton, pioneer of neural network technology, that “there is a 10% chance AI will wipe out humanity in the next 20 years” was raised as a discussion point by one participant.

We examined how AI systems can be designed to be antifragile or, in other words, how they can immunise themselves against volatility, randomness, and uncertainty rather than being harmed by these factors. The growing belief that AI itself could potentially identify Black Swan, or fat-tail, events through its ability to analyse big data and detect patterns was also debated.

We explored the need for financial policymakers to incorporate a greater understanding of nonlinear dynamics. We also discussed the importance of considering the limitations of historical data and the potential for discontinuous, non-Gaussian behaviors in their opinions and forecasts. The employment of analytical tools, such as scenario analysis, dynamic modeling, and rigorous stress testing to capture the true nature of economic phenomena and inform more robust policy decisions was also discussed.

We also looked at how standard financial models, such as the Black-Scholes option model and CAPM, are flawed to the extent that they assume a Gaussian distribution, which is, of course, not the case, and what the implications of this realisation are.

Many other pressing issues were reviewed. The discussion was lively and involved many of those present at the roundtable. It was a most stimulating and rewarding session.

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