AI and Alternative Data: A Burgeoning Arms Race

By some estimates, investment in alternative datasets will exceed $7 billion by 2020. At the same time, machine learning and other AI techniques are evolving at a rapid pace. The combination of the two will be significant.

Herd mentality has long driven investing. From the 1600s and Tulip Mania to the dotcom boom of the 1990s to the US housing bubble that crippled the global economy this century, irrational exuberance tends to lead to adverse effects.

But what happens when algorithms are leading the herd? Some argue that flash crashes happen. And some believe that regulators need to step in to lessen the risk of chaos. But what if this is more of a data issue, and less of a technology and regulatory issue?