Digital Wealth

Chapter 7 What Software Does Better than People

“In short, software is eating the world.”

—Marc Andreessen, Venture Capitalist

Software is exceptionally good at some tasks, yet terrible at others. Software is well suited to repeated activities with well-defined principles (fortunately, many areas of financial analysis have these traits). Software doesn’t get bored, get sick, or make unintentional mistakes. It doesn’t need any vacation days, or leave to work for a competing firm offering more money.

Software and robots generally are playing a growing role in the economy. In areas where precision, number crunching, or strength is needed, computers can do more at lower cost than humans. Computers and robots are playing an increasing role, from self-driving cars to remote oil pipeline inspection.

Of course, as with all prior technology advances, this generates some concerns. The main one is that computers will displace people in the economy. This is known as the “lump of labor” fallacy, because although computers can replace people for certain tasks, people are flexible and can take on new roles. The reason this is true is that computers can reduce the cost of a product or service, just as is occurring with investment management. Fortunately, as basic economics implies, reductions in cost generally see large increases in demand, and with that scale, more supervisory or complementary roles are created. In addition, even in investment management the optimal combination is not complete ...