The limits of AI in finance

Almost every sector faces disruption from the rise of artificial intelligence, which has prompted two major fears. The first is substitution: the concern over which jobs will remain once machines and algorithms can perform most tasks. The second is AI’s judgment — an existential fear reminiscent of “The Matrix,” where an advanced AI model might determine that humans are more harmful than beneficial to global progress. These anxieties have shaped public debate across industries, and the financial system is no exception.

In our 2024 paper, “The EPOCH of AI,” we take a different approach to the question of labor market substitution and, implicitly, also dispel the fear of AI’s judgement. This approach — as we highlight in the paper — is complementary to a very large existing literature, but it is distinct in one important dimension: instead of analyzing which tasks and jobs the current AI technology can perform, we ask what human capabilities AI could never suitably substitute for.