Marc Schmitt

Marc Schmitt

The last decades have been characterized by unprecedented technological advances, many of them powered by modern technologies such as Artificial Intelligence (AI) and Machine Learning (ML). The world has become more digitally connected than ever, but we face major challenges. One of the most significant is cybercrime, which has emerged as a global threat to governments, businesses, and civil societies. The pervasiveness of digital technologies combined with a constantly shifting technological foundation has created a complex and powerful playground for cybercriminals, which triggered a surge in demand for intelligent threat detection systems based on machine and deep learning. This paper investigates AI-based cyber threat detection to protect our modern digital ecosystems. The primary focus is on evaluating ML-based classifiers and ensembles for anomaly-based malware detection and network intrusion detection and how to integrate those models in the context of network security, mobile security, and IoT security. The discussion highlights the challenges when deploying and integrating AI-enabled cybersecurity solutions into existing enterprise systems and IT infrastructures, including options to overcome those challenges. Finally, the paper provides future research directions to further increase the security and resilience of our modern digital industries, infrastructures, and ecosystems.

Marc Schmitt

The realization that AI-driven decision-making is indispensable in today's fast-paced and ultra-competitive marketplace has raised interest in industrial machine learning (ML) applications significantly. The current demand for analytics experts vastly exceeds the supply. One solution to this problem is to increase the user-friendliness of ML frameworks to make them more accessible for the non-expert. Automated machine learning (AutoML) is an attempt to solve the problem of expertise by providing fully automated off-the-shelf solutions for model choice and hyperparameter tuning. This paper analyzed the potential of AutoML for applications within business analytics, which could help to increase the adoption rate of ML across all industries. The H2O AutoML framework was benchmarked against a manually tuned stacked ML model on three real-world datasets. The manually tuned ML model could reach a performance advantage in all three case studies used in the experiment. Nevertheless, the H2O AutoML package proved to be quite potent. It is fast, easy to use, and delivers reliable results, which come close to a professionally tuned ML model. The H2O AutoML framework in its current capacity is a valuable tool to support fast prototyping with the potential to shorten development and deployment cycles. It can also bridge the existing gap between supply and demand for ML experts and is a big step towards automated decisions in business analytics. Finally, AutoML has the potential to foster human empowerment in a world that is rapidly becoming more automated and digital.

Marc Schmitt

Artificial intelligence (AI) and machine learning (ML) have become vital to remain competitive for financial services companies around the globe. The two models currently competing for the pole position in credit risk management are deep learning (DL) and gradient boosting machines (GBM). This paper benchmarked those two algorithms in the context of credit scoring using three distinct datasets with different features to account for the reality that model choice/power is often dependent on the underlying characteristics of the dataset. The experiment has shown that GBM tends to be more powerful than DL and has also the advantage of speed due to lower computational requirements. This makes GBM the winner and choice for credit scoring. However, it was also shown that the outperformance of GBM is not always guaranteed and ultimately the concrete problem scenario or dataset will determine the final model choice. Overall, based on this study both algorithms can be considered state-of-the-art for binary classification tasks on structured datasets, while GBM should be the go-to solution for most problem scenarios due to easier use, significantly faster training time, and superior accuracy.

Marc Schmitt

In algorithmic markets, predictive models become part of the data-generating process they aim to forecast. Once their outputs are converted into trades, allocations, execution schedules, or risk controls, they change the future data on which they are evaluated. I introduce algometrics, a framework for time series whose evolution depends on the predictive algorithms forecasting them. The framework distinguishes historical risk, measured under passive forecasting, from deployment risk, measured when forecasts drive actions. I prove three results. First, deployment risk is not identifiable from passive historical data alone: even in a one-step linear feedback model, infinitely many algorithm-mediated environments induce the same historical law while implying different deployment risks for the same forecaster. Second, historical model rankings can invert under crowding, so a predictor with lower passive error can have higher deployment error once similar algorithms are adopted. Third, randomized or instrumented actions identify short-horizon linear feedback, and I derive a finite-sample bound for deployment-risk estimation. These results suggest that time-series benchmarks in algorithmic markets should report feedback sensitivity alongside predictive accuracy.

Marc Schmitt

This paper explores the integration of Explainable Automated Machine Learning (AutoML) in the realm of financial engineering, specifically focusing on its application in credit decision-making. The rapid evolution of Artificial Intelligence (AI) in finance has necessitated a balance between sophisticated algorithmic decision-making and the need for transparency in these systems. The focus is on how AutoML can streamline the development of robust machine learning models for credit scoring, while Explainable AI (XAI) methods, particularly SHapley Additive exPlanations (SHAP), provide insights into the models' decision-making processes. This study demonstrates how the combination of AutoML and XAI not only enhances the efficiency and accuracy of credit decisions but also fosters trust and collaboration between humans and AI systems. The findings underscore the potential of explainable AutoML in improving the transparency and accountability of AI-driven financial decisions, aligning with regulatory requirements and ethical considerations.

Marc Schmitt

The integration of Artificial Intelligence (AI) into corporate strategy has become critical for organizations seeking to maintain a competitive advantage in the digital age. As AI transforms business models, operations, and decision-making, the need for dedicated executive leadership to guide, govern, and orchestrate this transformation becomes increasingly evident. This paper examines emerging future scenarios across three domains: the AI Economy, the AI Organization, and Competition in the Age of AI. These domains reveal environmental, structural, and strategic tensions that existing C-suite roles struggle to resolve. In response, the paper develops a theory-informed framework for the Chief AI Officer (CAIO), outlining the distinct functions and capabilities required to guide and govern AI at scale. Drawing on illustrative cases and emerging practice, this conceptualization clarifies the CAIOs unique role within the executive landscape and presents a forward-looking research agenda. This paper advances the discourse on AI leadership by offering a theory-driven rationale for the strategic integration of AI at the executive level and by positioning the Chief AI Officer as a distinct and necessary role within modern organizations.

Marc Schmitt, Pantelis Koutroumpis

The digital age, driven by the AI revolution, brings significant opportunities but also conceals security threats, which we refer to as cyber shadows. These threats pose risks at individual, organizational, and societal levels. This paper examines the systemic impact of these cyber threats and proposes a comprehensive cybersecurity strategy that integrates AI-driven solutions, such as Intrusion Detection Systems (IDS), with targeted policy interventions. By combining technological and regulatory measures, we create a multilevel defense capable of addressing both direct threats and indirect negative externalities. We emphasize that the synergy between AI-driven solutions and policy interventions is essential for neutralizing cyber threats and mitigating their negative impact on the digital economy. Finally, we underscore the need for continuous adaptation of these strategies, especially in response to the rapid advancement of autonomous AI-driven attacks, to ensure the creation of secure and resilient digital ecosystems.

Mario Truss, Marc Schmitt

This paper addresses the complexities inherent in AI product prototyping, focusing on the challenges posed by the probabilistic nature of AI behavior and the limited accessibility of prototyping tools to non-experts. A Design Science Research (DSR) approach is presented which culminates in a conceptual framework aimed at improving the AI prototyping process. Through a comprehensive literature review, key challenges were identified and no-code AutoML was analyzed as a solution. The framework describes the seamless incorporation of non-expert input and evaluation during prototyping, leveraging the potential of no-code AutoML to enhance accessibility and interpretability. A hybrid approach of combining naturalistic (case study) and artificial evaluation methods (criteria-based analysis) validated the utility of our approach, highlighting its efficacy in supporting AI non-experts and streamlining decision-making and its limitations. Implications for academia and industry, emphasizing the strategic integration of no-code AutoML to enhance AI product development processes, mitigate risks, and foster innovation, are discussed.

Marc Schmitt

Our fast-paced digital economy shaped by global competition requires increased data-driven decision-making based on artificial intelligence (AI) and machine learning (ML). The benefits of deep learning (DL) are manifold, but it comes with limitations that have, so far, interfered with widespread industry adoption. This paper explains why DL, despite its popularity, has difficulties speeding up its adoption within business analytics. It is shown that the adoption of deep learning is not only affected by computational complexity, lacking big data architecture, lack of transparency (black-box), skill shortage, and leadership commitment, but also by the fact that DL does not outperform traditional ML models in the case of structured datasets with fixed-length feature vectors. Deep learning should be regarded as a powerful addition to the existing body of ML models instead of a one size fits all solution. The results strongly suggest that gradient boosting can be seen as the go-to model for predictions on structured datasets within business analytics. In addition to the empirical study based on three industry use cases, the paper offers a comprehensive discussion of those results, practical implications, and a roadmap for future research.