Without doubt, 2023 has been the year that artificial intelligence (AI) has entered the mainstream. If the frequency of Google search terms are a metric of popular interest, then ‘artificial intelligence’ peaked at around ten-times the interest levels of 2004. The term ‘AI’ produces similar results. During this time we have seen attempts to supplant human thought with AI tools in applications ranging from piloting cars to playing games and choosing investments. With no sign of regulation on the horizon and AI tools becoming more user friendly all the time, the depth and breadth of these applications will only grow.

If AI tools can be very good at performing in the sandbox confines of a rules-based game, where the only damage that can be caused is to a human opponent’s pride, how they might perform when let loose upon the world is less predictable. What is certain is that anywhere there is scope to argue over an exercise in judgement there will be scope to do likewise where AI is the decision-maker.

Courts have already grappled with situations where a trading platform enters into a contract automatically by the operation of code. There is no issue as a matter of law in human masters programming their systems to allow this to happen, and there is no reason why AI systems couldn’t be given that same authority. Humans, however, are perfectly capable of disagreeing over whether they have entered into a contract, so this seems likely to continue to happen with AI decision-makers. After all, the press is full of stories about AI systems acting in surprising ways. If an AI decision-maker entered into what an educated and informed human might consider to be an objectively poor deal, the ‘losing’ side might argue that the deal was so obviously bad that it was clear to both sides a mistake had been made. However, it is notoriously difficult to persuade a court that a contract should be void for mistakes – in the same way that wandering into checkmate cannot be undone on the basis of a schoolboy error.

AI: friend or foe when it comes to investments?

The situation gets more challenging not when AI is your opponent but when it is playing for you. Many investment platforms now offer so-called ‘robo advice’, which are algorithmic tools that recommend investments to customers based on customer input. Going a step further, full AI tools have been reported to outperform expert stock-pickers (and even if anecdotes such as this are not representative of actual mean performance, and what we have seen are examples of beginner’s luck, the practice is surely here to stay). For an adviser that is recommending (or purporting to recommend) investments, it must meet the standard of a reasonably competent investment adviser or it runs the risk of being found negligent and having to compensate a customer for its losses. A critical drawback of AI systems (not to mention more basic algorithmic investment advisers) is that they lack common sense. AI might not react to a probably erroneous user input in the same way as a human adviser. For example, did the 30-year-old professional mean to say he had 11 children? Might he have meant 1?

More interesting still would be the ‘Google Maps effect’ (the digital equivalent of the ‘Lonely Planet effect‘). If there was ever a time when it was used by a minority group of those in the know to zip around town by making use of less obvious routes, it quite quickly contributed to congestion by sending its swelling user base down those same surprising (and therefore probably small?) streets. What happens when the equivalent of Google Maps in the investment sphere triggers sell orders for the same share simultaneously? It would take some creativity to dream up a cause of action for that scenario, but not that much.  

If this is the direction of travel, and if AI outperforming expert stock-pickers is not just an anecdotal one-off, then it would take a brave adviser to ignore the utility of these tools. What is more, if AI raises the standard across the board, then there may come a time when it is negligent not to make use of AI.

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Sam Roberts is a partner and solicitor advocate at Cooke, Young and Keidan.