Wednesday, November 2, 2016

The Road to Computerized Grading - Part 1

Prior to the metals rush of the 1980's, coin buyers had two options when purchasing coins. One, they could become numismatic gurus with detailed knowledge of the series they collected. Two, they could choose to trust a dealer who, hopefully, was honest.

Unfortunately, not all dealers were honest. Grade inflation was common practice. Unwary coin buyers were being fleeced with no indication that something might be amiss. I don’t believe all dealers with over-graded coins did so on purpose. Most collectors know the tendency to overstate our coins' grades, especially when we're first starting out in the hobby. Dealers, especially smaller mom and pop shops without access to a large volume of coins to inspect, sometimes unintentionally over-graded their stock simply because they did not know better. It is easier to believe you have an uncirculated coin than a nice AU, especially if this minute difference results in a large jump in value. This kind of "one-up" grading was an albatross around the hobby’s neck.

When the bullish metals market of the 1980s reached it apex, third party grading companies entered the scene to help stabilize grading standards. They provided a variety of additional services to collectors including authentication, preservation, and added security. For a nominal fee any collector could have an expert examine their coin, grade it, confirm it was genuine, and place it in a holder that kept it safe from harm and was difficult to counterfeit.

Third party graders served to add a never-before-experienced level of legitimacy to numismatics.

Over the past three decades, surprisingly few problems have emerged, and of those, none appear to be unsolvable. The two most frequently sited issues are:

Coin grades are not facts, they are opinions. We expect the experts assigning grades to be perfectly consistent. This is unreasonable because, experts or not, they are human and humans are subjective beings. We can't help but be influenced by our thoughts, feelings, tastes, and moods. This comes through in everything we do.

Grading standards have slowly fallen over the years. The MS-63 of yesteryear is the MS-64 of today. This slackening in standards is referred to by collectors as Gradeflation. At its core, this is best described as institutional inconsistency.

Think of it this way: A coin's condition does not change for the better over time. It simply doesn't happen. Yet, as in the example above, coins that graded MS-63 twenty or thirty years ago will often grade higher than that today. The coins didn't improve; the standards fell.

So what's the answer? Take people out of the grading process? Let machines tell us whether our coins are genuine and their state of preservation?

It has been tried.

In the early nineties PCGS was awarded a patent for an automated coin grading system. Had they been able to make the system function as described, computerized grading would be considered a legacy technology today. Unfortunately, they couldn't make it work well enough to replace human experts.

But, I refuse to let the failures of the past dictate the future. Just because the computerized grading puzzle couldn't be figured out then, doesn't mean it can't be figured out now. I mean, IBM taught Watson how to "think." I believe the right group of people can teach a computer to accurately and consistently grade coins.

In the next installment, I will talk about how. Stay tuned!

Read Part 2 here.

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