Book review: Prediction Machines

Prediction Machines: The Simple

Economics of Artificial Intelligence
Authors: Ajay Agrawal, Joshua Gans, and Avi Goldfarb

Publisher: Harvard Business Review Press (Hardcover)

Pages: 256

Publishing year: 2018

You'll hear many things about artificial intelligence (AI), depending on who you
choose to listen to.

The doomsayers will tell you that AI is mankind’s last invention. They see a
dystopian world where superintelligence will run riot and will either eliminate
us or enslave us. The less discerning envisage a future filled with job-killing
robots with everyday functions taken over without a need for humans.

In this welter of the confusion comes a book that paints a picture of AI that is far
less complicated and not as threatening. Prediction Machines envisions a far
better future compared to where we are today.

The three authors – Ajay Agrawal, Joshua Gans, and Avi Goldfarb – are
academicians at Rotman School of Management, each has a background in
economics. Together they also run Creative Destruction Lab (CDL), a Toronto-
based accelerator that boasts of having the greatest concentration of AI startups
on the planet.

Now in case you are wondering why to read a book on AI written by economists,
then let me clear the air for you. Where others see crazy fads and radical
transformations, economists see what has changed. So the AI might lead to
pathbreaking turnarounds in business, but, the thing that matters to economists
is what cost benefits will accrue to companies.

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The key thing to understand is that even with recent leaps in the fields of
machine intelligence and deep learning, we are still quite far off from machines
achieving human-level intelligence. A stage often labeled as Artificial General
Intelligence (AGI).

But instead of riding the fear-mongering bandwagon about the disastrous impact
of the AI, the authors focus on its positive implications in business.

They note that what we call AI is at its heart a prediction technology. The output
of machine learning is the prediction.

Prediction is a key component of intelligence and that’s the reason why

technologists prefer to call it AI. You might not have realized it but predictions
are everywhere. Every day we make numerous decisions on the back of
predictions.

Here’s how the trio defines it:

“Prediction is the process of filling in missing information.

Prediction takes information you have, called data, and
uses it to generate information you don’t have.”

Predictions provide foundational inputs to decision-making and economists

provide frameworks for decision-making.

Cheaper Data, More Predictions

The costs of prediction are dropping. Why? Because the main input – data – is
getting cheaper. More quality data means better predictions.

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It’s not hard to figure out that when predictions are cheap, there will be more
and more of them. The availability of massive data enables AI experts to convert
many non-prediction problems into prediction problems.

Take, for example, autonomous driving. It is not a new phenomenon. Leading

auto manufacturers have used autonomous vehicles inside the plants for quite
some time. But they have not been tested outside those controlled environments
until recently.

Car manufacturers like Tesla transformed self-driving into a prediction problem.

With the help of sensors, cameras and GPS, the Tesla AI was fed massive data to
learn and improve consequentially.

Another interesting example where the manifestation of cheap predictions will

be prominent, according to authors, is Amazon. Amazon is no stranger to AI. The
company was one of the first to use technology to drive its product
recommendations.

If you order stuff from Amazon, you’d have noticed ‘related to items you’ve
viewed’ header on the home page. That’s Amazon’s prediction technology at
work. In the future, however, authors expect Amazon to ship you stuff based on
the frequency of your past purchases before you even log on to shop. Shipping
before shopping, you know. It sounds implausible today, but at the pace, Amazon
is building its AI, it will become a possibility in the near future.

Predictions will improve Human Judgments

Machines don’t make judgments, humans do.

The optimal scenario will see both humans and machines working together with
humans in supervisory roles.

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Authors supply the example of credit card frauds to make their point. Machines
can flag a dubious transaction basis the past data – frequency, timings and
quantum of transactions by a consumer. But how do you separate a fraudulent
transaction which has a 90% chance of being correct from the one with a 10%
chance? You need a human in the loop.

Further, such situations involve a clear trade-off scenario for the company. If you
settle for blocking what is indeed an unauthorized transaction, then you save
yourselves the pain of recovering costs. However, if you are wrong, you have on
your hands a dissatisfied and angry customer who is ready to sever his ties with
the company.

To this effect, the authors state, “As prediction machines make predictions
increasingly better, faster, and cheaper, the value of human judgment will increase
because we will need more of it.

A Future brimming with Trade-offs?

The book leaves you with a disconcerting thought that the future will involve a
lot of trade-offs. It’s quite possible that policy-makers or other interventionists
might settle for insalubrious choices at times. For example, wealth accumulation
vs wealth distribution.

AI or Prediction Machines are skill-biased technologies. This has deep

implications as AI tools might disproportionately boost the productivity of a
select few and leave several others by the wayside. Further, it’s no longer a
conjecture now that AI will take over certain tasks from humans. For the
remaining jobs, the authors predict there will be a scramble.

If these scenarios play out, we might witness a manifold increase in the capital of
tech-owners and capitalists. At the same time, those on the fringes will get
further marginalized as their incomes will get hit.

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Conclusion

Unlike Max Tegmark’s bestseller Life 3.0 which focused on vast realms of AI like
Artificial General Intelligence and Superintelligence, Prediction Machines is about
the narrow AI, the kind which is being used today.

A general audience will indeed find Prediction Machines much of interest.

However, Data scientists or Machine learning practitioners may not glean a great
deal of new material in this book.

Furthermore, as economists, the authors are indeed adept at uncovering

potential unintended consequences of prediction technology and this makes for
interesting reading.

Authors also avoid using the term AI as such in excess. Since in its existing avatar,
most AI tools help accomplish specific tasks only – that of solidifying predictions
– they settle for “Prediction Machines”.

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Jasrotia, A. (2019, March 15). Book Review: Prediction Machines. Retrieved from
https://bookjelly.com/book-review-prediction-machines/

This review was first published on my book review site https://bookjelly.com