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Decoding The Monetary Impact

Are you prepared for the catastrophic financial fallout that could occur if your company's AI system goes rogue and causes real-world damage? It's a chilling thought, but one that businesses must confront in the age of artificial intelligence. A new study by Calvin Risk has now quantified the financial impact of AI incidents, and the results are staggering.

Not too late ago, Alphabet, the tech giant known for its dominance in the world of artificial intelligence, was left reeling after its latest venture, a ChatGPT rival, made a glaring mistake in its very first advertisement. The mishap sent shockwaves through the tech community and resulted in Alphabet shares taking a nosedive. The ad, which was supposed to showcase the capabilities of Alphabet's new AI-powered chatbot, went awry when the bot responded to a user query with inaccurate information. The mistake was quickly caught by eagle-eyed users, and the news spread like wildfire across social media, creating a public relations nightmare for Alphabet. Investors were quick to react, and Alphabet shares plummeted, wiping out billions of dollars in market value – a robot’s $100 billion error. The incident served as a stark reminder of the challenges and risks associated with cutting-edge AI technologies and how enormous the financial impact of such an AI incident can be.

Quantifying the financial impact of AI incidents allows companies to conduct a cost-benefit analysis of their AI projects. By comparing the potential benefits of using AI against the costs associated with AI incidents, companies can make informed decisions about the viability of implementing AI technologies in their operations.  Understanding the financial impact of AI incidents helps companies assess the risks and benefits associated with AI deployment and determine if the benefits outweigh the potential costs. Furthermore, it enables companies to effectively manage risks associated with AI technologies. AI systems can sometimes produce incorrect or biased results, make mistakes, or fail unexpectedly. These incidents can lead to financial losses, reputational damage, and legal liabilities. By quantifying the financial impact of such incidents, companies can identify potential risks, implement risk mitigation strategies, and allocate resources to manage and mitigate those risks effectively. Moreover, companies can measure the effectiveness and efficiency of their AI initiatives by analyzing the financial impact of AI incidents, such as the costs incurred due to incorrect AI predictions, or the revenue lost due to AI failures. This evaluation helps companies identify areas for improvement, optimize their AI systems, and continuously enhance their AI capabilities.

Stock Price of Zillow and Apple after the AI Incident

According to the research, conducted by experts using a state-of-the-art AI Incident Valuation Model, the average cost of AI incidents is at least 0.41% of a company's total capitalization prior to the incident date for a core dataset of 16 incidents. For a larger dataset of 122 incidents with material severity and available stock price data, the average cost was at least 0.24%, at a 90% confidence level. These figures represent a potentially catastrophic loss of millions, if not billions, of dollars for businesses. The AI Incident Valuation Model, which takes into account data related to the incidents, true financial stock price data after the incident, and stock price forecasts from the Fama French 5 factors model, allows businesses to estimate the difference between the actual stock price after the incident and an estimation of the stock price if the incident had not occurred. This puts a dollar value on the external cost of AI incidents to a company's stock value.

Don't let your company be caught off guard by an AI incident. Our model provides a powerful tool for businesses to estimate the potential financial impact of AI incidents and take proactive steps to prevent them:

--> Establish clear guidelines and processes for developing, deploying, and monitoring AI

--> Develop an understanding of and address potential risks associated with AI through research

--> Develop a comprehensive plan for identifying, assessing, and mitigating risks associated with artificial intelligence

If you want to stay ahead of the curve and ensure the long-term success of your business, don't wait until it's too late. Contact the experts behind the AI Incident Valuation Model today to learn more about this cutting-edge tool and how it can help you safeguard your company's financial well-being. Don't leave the financial impact of AI incidents to chance, the consequences of inaction could be dire.

For more information about the model or how it can be used in a holistic AI risk assessments context contact our CTO & Co-Founder, Syang Zhou, sz@calvin-risk.com


Syang Zhou

CTO & Co-Founder

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