Power and Prediction: The Disruptive Economics of Artificial Intelligence

We make thousands of decisions every day. We have agency over our personal decisions. At the same time, companies, governments and not-for-profits are defined by their authority and influence over other decisions.

The two key ingredients to decision-making are prediction and judgment. We perform both together in our minds, often without realizing it, every time we make a decision. The rise of AI is shifting one of those ingredients – prediction – from humans to machines.

Decoupling prediction and judgment, and relieving humans from the cognitive load of prediction – while increasing the speed and accuracy of this function – is setting the stage for a flourishing of new decisions. Many of these decisions are new because we previously hid them via rules, insurance and over-engineering. We did such a good job hiding them that we’ve long since forgotten they were ever there. AI is increasing the returns to unearthing these long-hidden, latent decisions. Today, we stand on the precipice of a renaissance in decision-making.

This has profound implications for business and society. Decision-making confers power. Thus, changes in decision-making can lead to changes in power. Centralizing or decentralizing decision-making will consolidate or distribute power. Shifting who makes decisions will shift who wields power. In industry, power confers profits. In society, power confers control.

Ajay Agrawal is the Geoffrey Taber Chair in Entrepreneurship and Innovation at the University of Toronto’s Rotman School of Management, Research Associate at the National Bureau of Economic Research in Cambridge, MA, Faculty Affiliate at the Vector Institute for Artificial Intelligence in Toronto, Board Member at Carnegie Mellon University’s Block Center for Technology and Society in Pittsburgh, PA, and Advisory Board Member for Green College. Ajay has published many scholarly articles on the economics of innovation and he is the co-author of Prediction Machines: The Simple Economics of Artificial Intelligence and co-editor of The Economics of Artificial Intelligence: An Agenda. Ajay serves on the editorial boards of Management Science and the Strategic Management Journal. He is the founder of the Creative Destruction Lab and co-founder of Next Canada, both of which are not-for-profit programs to support entrepreneurs. Ajay is also an alumnus of UBC and former Resident Member of Green College