Prediction Machines: The Simple Economics of Artificial Intelligence

by Ajay Agrawal

Humans and machines can accumulate data, whether for input, training, or feedback, depending on the data type. A human must ultimately make a judgment, but the human can codify judgment and program it into a machine in advance of a prediction. Or a machine can learn to predict human judgment through feedback. This brings us to the action. When is it better for machines rather than humans to undertake actions? More subtly, when does the fact that a machine is handling the prediction increase the returns to the machine rather than a human also undertaking the action? We must determine the returns to machines performing the other elements (data collection, judgment, actions) to decide whether a task should be or will be fully automated.