Economics of AI

Source: HBR, Dec 2016

All human activities can be described by five high-level components: data, prediction, judgment, action, and outcomes. For example, a visit to the doctor in response to pain leads to: 1) x-rays, blood tests, monitoring (data), 2) diagnosis of the problem, such as “if we administer treatment A, then we predict outcome X, but if we administer treatment B, then we predict outcome Y” (prediction), 3) weighing options: “given your age, lifestyle, and family status, I think you might be best with treatment A; let’s discuss how you feel about the risks and side effects” (judgment); 4) administering treatment A (action), and 5) full recovery with minor side effects (outcome).

As machine intelligence improves, the value of human prediction skills will decrease because machine prediction will provide a cheaper and better substitute for human prediction, just as machines did for arithmetic. However, this does not spell doom for human jobs, as many experts suggest. That’s because the value of human judgment skills will increase. Using the language of economics, judgment is a complement to prediction and therefore when the cost of prediction falls demand for judgment rises. We’ll want more human judgment.

The line between judgment and prediction isn’t clear cut – some judgment tasks will even be reframed as a series of predictions. Yet, overall the value of prediction-related human skills will fall, and the value of judgment-related skills will rise.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s