Power And Prediction

The Disruptive Economics of Artificial Intelligence

Ajay Agrawal, Joshua Gans, Avi Goldfarb

17 min read
1m 2s intro

Brief summary

Artificial intelligence matters because it makes prediction cheap, creating opportunities to redesign entire systems around better information. The biggest gains come not from automating isolated tasks, but from rebuilding workflows, rules, and even industries around abundant prediction while keeping human judgment in charge of what matters.

Who it's for

This book is for leaders, strategists, and managers who need to understand how AI will change their organization's structure and decision-making processes.

Power And Prediction

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How AI Changes Decisions

Artificial intelligence matters because it makes prediction cheaper. It takes what is already known and uses it to estimate what is missing, such as whether a customer will buy, whether a machine will fail, or whether a patient is at high risk. That sounds narrow, but prediction sits inside almost every important decision, so lowering its cost changes much more than a single task.

A decision has three parts: data, prediction, and judgment. Data supplies the raw material. Prediction estimates what is likely to happen. Judgment decides what matters, what trade-offs are acceptable, and what goal is worth pursuing. AI improves the middle step, but it does not tell people what they should value.

That distinction becomes important very quickly. A machine can estimate the chance that a medical test will reveal disease, or the chance that a self-driving car faces danger, but someone still has to decide how much risk is acceptable. The machine provides probabilities. People still define the stakes.

This is why AI does not simply replace workers one by one. It pulls prediction out of the human mind and turns it into a separate, scalable resource. Once prediction is separated from judgment, organizations can redesign who does what, where decisions are made, and which parts of a process can be automated.

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About the author

Ajay Agrawal

Ajay Agrawal is a professor at the University of Toronto's Rotman School of Management and a Research Associate at the National Bureau of Economic Research, recognized for his work on the economics of artificial intelligence. He is the founder of the Creative Destruction Lab, a program for early-stage, science-based companies, and has made significant contributions to understanding how AI transforms business and society by lowering the cost of prediction. Agrawal has co-authored influential books on the topic and is a Member of the Order of Canada.

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