I believe the poster meant a machine-learning system blowing up (catastrophic trading loss) due to a black swan event that the system wasn't trained to deal with.

Knight's blow-up was a process/sysops failure, not due to their strategies going wonky.

[As a side note I believe their core strategies were human-analyst designed, not ML based, but I could be wrong.]

Wouldn't process & sysops failures count as blackswan events if the AI or ML algorithms weren't trained to deal with those types of hiccups?

How many of these hedge funds running on AI are out there in America?

I'd think one would make a lot of money shorting such outfits.

That would only work if you'd expect these events to be frequent enough that you wouldn't have to short for very long or else the costs of your short would outpace any possible profit very quickly.

Only if you can time when they're going to fail. It's not enough to be right, you have to be right at the right time.

I know with high confidence that these AI run hedge fund outfits reverts to a zero sum mean. Doesn't mean that there won't be one or two that beats the market for sometime as a whataboutism. The timing is a major issue, it's tough to at what year these AI hedge funds fail.

The other capital that blew up from the comments suggest it was more of a human error that led to deployment failures which is exactly why AI hedge funds is such a paradox. At the end of the day, it's humans that's deploying and building the model to be approximately right with high degree of accuracy but in the day trading environment it is a poor model for success-not only do you have to be right your monetary exposure must be right...."but proper money management and you will be fine" said everyone who took part in this zero sum game.

I don't know, prove me wrong, I'm sure those ivy league engineers on wall street aren't getting paid dimes for what they do.

That wasn't really an AI failure:

https://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stoc...

Even if a human deployed it, considering that everything automated by a computer can now be called AR by PR agencies it is an AI failure ;)

Not quite. This was merely a simple deployment mishap due to repurposing a flag which triggered deprecated code paths that should have been gutted out.