Working Paper: NBER ID: w24626
Authors: Ajay K. Agrawal; Joshua S. Gans; Avi Goldfarb
Abstract: Based on recent developments in the field of artificial intelligence (AI), we examine what type of human labor will be a substitute versus a complement to emerging technologies. We argue that these recent developments reduce the costs of providing a particular set of tasks – prediction tasks. Prediction about uncertain states of the world is an input into decision-making. We show that prediction allows riskier decisions to be taken and this is its impact on observed productivity although it could also increase the variance of outcomes as well. We consider the role of human judgment in decision-making as prediction technology improves. Judgment is exercised when the objective function for a particular set of decisions cannot be described (i.e., coded). However, we demonstrate that better prediction impacts the returns to different types of judgment in opposite ways. Hence, not all human judgment will be a complement to AI. Finally, we show that humans will delegate some decisions to machines even when the decision would be superior with human input.
Keywords: Artificial Intelligence; Prediction; Judgment; Decision-Making
JEL Codes: D81; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Advancements in AI (C45) | Increased risk-taking (G41) |
| Increased risk-taking (G41) | Observed productivity (O49) |
| Better prediction (C53) | Changes in human judgment (D91) |
| Better prediction (C53) | Substitution for judgment over hidden opportunities (D81) |
| Better prediction (C53) | Complement for judgment over hidden costs (D10) |
| Improved prediction technology (C53) | Delegation of decision-making authority to machines (D70) |
| Delegation of decision-making authority to machines (D70) | Reduced human oversight (L23) |