The year 1995 was heralded as the beginning of the “New Economy.” Digital communication was set to upend markets and change everything. But economists by and large didn’t buy into the hype. It wasn’t that we didn’t recognize that something changed. It was that we recognized that the old economics lens remained useful for looking at the changes taking place. The economics of the “New Economy” could be described at a high level: Digital technology would cause a reduction in the cost of search and communication. This would lead to more search, more communication, and more activities that go together with search and communication. That’s essentially what happened.

Today we are seeing similar hype about machine intelligence. But once again, as economists, we believe some simple rules apply. Technological revolutions tend to involve some important activity becoming cheap, like the cost of communication or finding information. Machine intelligence is, in its essence, a prediction technology, so the economic shift will center around a drop in the cost of prediction.

The same goes for machine intelligence and prediction. As the cost of prediction falls, not only will activities that were historically prediction-oriented become cheaper — like inventory management and demand forecasting — but we will also use prediction to tackle other problems for which prediction was not historically an input.

All human activities can be described by five high-level components: data, prediction, judgment, action, and outcomes.

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.

Read original article


Tags: