Artificial Intelligence - Tradeoffs

Posted on 28/Mar/2019 12:00: AM

The rise of AI presents society with many choices. Each represents a tradeoff. At this stage, while the technology is still in its infancy, there are three particularly salient trade-offs at the society level. 

Productivity versus Distribution

The first trade-off is productivity versus distribution. Many have suggested that AI will make us poorer or worse off. That's not true. Economists agree that technological advance makes us better off and enhances productivity. AI will unambiguously enhance productivity. The problem isn't wealth creation; it's distribution. AI might exacerbate the income inequality problem for two reasons. First, by taking over certain tasks, AI's might increase competition among humans for the remaining tasks, lowering wages and further reducing the fraction of income earned by labor versus the fraction earned by the owners of capital. Second, prediction machines, like other computer-related technologies, may be skill-biased such that AI tools disproportionately enhance the productivity of highly skilled workers.

Innovation versus Competition

The second trade-off is innovation versus competition. Like most software-related technologies, AI has scale economies. Furthermore, AI tools are often characterized by some degree of increasing returns: better prediction accuracy leads to more users, more users generate more data, and more data leads to better prediction accuracy. Businesses have greater incentives to build prediction machines if they have more control, but, along with scale economies, this may lead to monopolization. Faster innovation may benefit society from a short-term perspective but may not be optimal from a social or longer-term perspective. 

Performance versus Privacy

The third trade-off is performance versus privacy. AI's perform better with more data. In particular, they are better able to personalize their predictions if they have access to more personal data. The provision of personal data will often come at the expense of reduced privacy. Some jurisdictions, like Europe, have chosen to create an environment that provides their citizens with more privacy. That may benefit their citizens and may even create conditions fora more dynamic market for private information where individuals can more easily decide whether they wish to trade, sell, or donate their private data. On the other hand, that may create frictions in settings where opting in is costly and disadvantages European firms and citizens in markets where AI's with better access to data are more competitive. 

For all three trade-offs, jurisdictions will have to weigh both sides of the trade and design policies that are most aligned with their overall strategy and the preferences of their citizenry.

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Hiren Panchani

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