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August 7 - August 13, 2017
The big gains came not from simple substitution of electric motors for steam engines, but from the redesign of the production process itself.
We’ve heard about and seen this division of labor between minds and machines so often that we call it the “standard partnership.”
Economists Ozkan Eren and Naci Mocan found that in one US state, judges who were graduates of a prominent regional university handed down significantly harsher sentences immediately after their alma mater experienced an unexpected loss in a football game, and that these sentences were “asymmetrically borne by black defendants.”
That practical conclusion, we believe, is that we need to rely less on expert judgments and predictions.
Careful selection of the right data inputs and the right performance metrics, especially the overall evaluation criterion, is a key characteristic of successful data-driven decision makers.
As Kahneman and psychologist Gary Klein write, “You should never trust your gut. You need to take your gut feeling as an important data point, but then you have to consciously and deliberately evaluate it, to see if it makes sense in this context.
Among excellent companies a fundamental shift is taking place: away from long-range forecast, long-term plans, and big bets, and toward constant short-term iteration, experimentation, and testing.
Furthermore, the worlds we inhabit, both the one populated by physical objects and the one of ideas and concepts, are lousy at sticking to one set of rules. Chairs have legs, except when they have pedestals or upholstered bases, or are suspended from the ceiling.
Yann LeCun has memorably highlighted the vast, largely untapped importance of unsupervised learning with a cake metaphor. He says, “If intelligence was a cake, unsupervised learning would be the cake, supervised learning would be the icing on the cake, and reinforcement learning would be the cherry on the cake. We know how to make the icing and the cherry, but we don’t know how to make the cake.”
A remark attributed to the legendary computer scientist Frederick Jelinek captures the reason behind the broad transition within the artificial intelligence community from rule-based to statistical approaches. He observed in the mid-1980s, “Every time I fire a linguist, the performance of the speech recognizer goes up.”
The most advanced robot cook the two of us have seen is the hamburger maker developed by Momentum Machines, a startup funded by venture capitalist Vinod Khosla. It takes in raw meat, buns, condiments, sauces, and seasonings, and converts these into finished, bagged burgers at rates as high as 400 per hour. The machine does much of its own food preparation, and to preserve freshness it does not start grinding, mixing, and cooking until each order is placed.
Examples like this race car chassis convince us that digital creativity is more than mimicry and incrementalism. Computers can come up with more than extensions and recombinations of what humans have already done.
The Shanghai Tower is a 128-story modern skyscraper in the heart of the city’s Pudong neighborhood. It’s highly energy efficient, using technology that reduces its carbon footprint by 34,000 metric tons per year, and sparing enough in its use of materials to save $58 million in construction costs. What’s more, we find its twisting, gleaming form quite beautiful. Both the building’s initial shape and structure were computer-generated.
We suggest a slight tweak for health care: the medical office of the future might employ an artificial intelligence, a person, and a dog. The AI’s job will be to diagnose the patient, the person’s job will be to understand and communicate the diagnosis, and to coach the patient through treatment, and the dog’s job will be to bite the person if the person tries to second-guess the artificial intelligence.
Most fundamentally, it brings to the platform owner a greater volume and variety of contributions, motivations, and ideas than the owner alone ever could have mustered. These contributions deliver two powerful economic benefits: they increase consumer surplus and they push out the demand curve for complementary products, which means that more of them will be sold at any given price point. Two other benefits also accrue to platform owners when they open up their creations. First, they get data: about what kinds of apps (or other aspects of the platform) are popular, how this popularity changes
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The smart strategy is to lower the price on the side of the market with the greater elasticity and raise it on the side with less price elasticity.
As the mathematician and author John Allen Paulos observed in the early days of the web, “The Internet is the world’s largest library. It’s just that all the books are on the floor.”
“In general it is not the owner of stage coaches who builds railways.”
Since then, more than 1,800 plastic, 3D-printed hands have been created, assembled, and delivered to people in over forty-five countries.¶¶
Coase’s analysis of this question proves again how right Keynes was about the enduring influence of dead economists: “The Nature of the Firm” is frequently cited by geeks and technologists. In fact, it’s almost the only economics paper we’ve heard them mention.
Deming was also able to assess demand shifts for what he calls the “social skills” of coordination, negotiation, persuasion, and social perceptiveness. He found that “social skill task inputs”—in other words, the overall use of these tasks—increased 24% between 1980 and 2012, while the use of “non routine and analytical skills” grew only 11%. What’s more, jobs that required high social skills increased as a share of total employment during this period, whether or not those jobs also required high math skills.
The second reason human social skills remain so valuable is that most of us don’t find numbers and algorithms alone very persuasive. We’re much more swayed by a good story or compelling anecdote then we are by a table full of statistically significant results. This is another of our cognitive biases, obviously, but one that none of us can afford to ignore. So, smart companies invest heavily in the gentle art of persuasion, not only of their customers but also of their own people. This is why, as Deming found, analytical ability is even more valuable when it’s paired with high social skills;
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