[dagheti]

This is true only if we accept that AI trading is actually making the market more efficient. The 'wisdom' of crowds is often foolishness, and this could be even more true for a crowd of computers.

It is very possible that by using AI that looks mostly at numbers for trading is just destabilizing by relying too heavily on specific variables (the ones the algorithms can actually use as inputs) , and reduces efficient allocation of capital.

[motters]

I tend to agree. One of the difficult problems with using AI for market predictions is that the market includes human psychology in the loop, which is not always rational and there are factors which are difficult to include within the model. When people are making buying or selling decisions they're often factoring in imponderables such as gossip, personal prejudices and vague hunches. These hard to simulate decision processes are then greatly amplified by positive feedback - which includes automated trading systems.

[vecter]

This is false. You can't make money by being consistently wrong about the "true" value of an asset. Then, the only way you can stay in business is to sell the asset when it's too high, and buy it when it's too low. Notice how doing this actually decreases the amplitude of the oscillations. If you're selling at a high point, you're pushing the price back down. Likewise, if you're buying at a low point, you're pushing the price back up (both times, towards its "true" value).

The reason I use "true" in quotes is because no one really knows the value of an asset. The only real estimate we have is the market estimate. Let me put it another way: if you don't believe markets efficiently allocate capital, then how would you propose we do it? By fiat?

Once again, I want to emphasize that you cannot be wrong about the value of an asset and consistently make money. If these AI algorithms are consistently making money, then they are, more often than not, accurately predicting the value of that asset (where value is defined as the future market price). Of course, my argument hinges on the market price being "right", but like I said, markets are the best way we know how to value things.

[JabavuAdams]

What is the true value of an asset?

There are many theories on this, and "what someone else will pay for it" is just one. Investors are not rational!

[vecter]

I'm not even talking about investors. I'm talking about how to price an apple. Do you think there's a better way to price it than by the free market?

Note that I'm not advocating getting rid of regulation -- I think that's very important, since most businesses don't correctly price in externalities, a la BP and the 2008 crash. To answer your question, though, he point I'm making is that no one knows the true value of an asset. That's why we have markets: to help us price them. Unless we have a better mechanism for pricing assets (anything, not just stocks), we should take the market price as close to fair.