A Study on Economics Theories used in AI

Ⅰ. Introduction

Among artificial intelligence, the theory and algorithm most commonly used in deep learning are
gradient descent and backpropagation algorithm.

This applies the theory of minimum cost in economics and uses the backpropagation algorithm to
find and optimize its minimum cost, which means that there are many similarities to cost
determinism and AI optimization behavior in finding the minimum value, the target value.

Gradient Descent

Backpropagation

Ⅱ. Body

The economics theories applied to artificial intelligence led to AI beating people. For instance, in a
chess game, the AI would calculate the quickest way to get a checkmate after finding the shortest
moves needed.

1. Greedy best-first search algorithm

Greedy best-first search algorithm is an algorithm that holds some information in navigation
and forms a navigation strategy accordingly. The nodes of a tree structure are evaluated by a
heuristic function, which ranks alternatives in search algorithms at each branching step.

The search begins from the left side, like other search algorithms, and traverses to nodes
considered closest to the goal. However, greedy search does not guarantee finding the solution
with the shortest path, for example, when the goal is at much deeper levels of a tree structure.

2. Simulated annealing algorithm

Simulated annealing is a probabilistic algorithm for approximating the optimum of a function.

3. Game Theory’s assumptions and example

The theory is that the maximum utility should be sought and people would choose a choice that
maximizes their utility while considering what other people would choose.

In the stag-hare example, if both choose the stag, they would get the most benefit. However, if
the other chooses the hare, the one who chose stag would get no benefit at all.

Zero-sum game
A core theory of AI, the zero-sum game leads the winner to monopolize the game.

III. Conclusion

In conclusion, many of the theories that are the foundations of AI can be found in the field of
economics, such as optimization and maximizing utility. In reverse, the application of said
economics theories in AI proves the theories. Humans are not always rational, inhibiting them
from choosing what is best for them. This makes rationality the strongest advantage the AI has
against humans.