Human Judgment and AI Pricing

10 Pages Posted: 6 Feb 2018

See all articles by Ajay Agrawal

Ajay Agrawal

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Avi Goldfarb

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 28, 2018

Abstract

Recent artificial intelligence advances can be seen as improvements in prediction. We examine how such predictions should be priced. We model two inputs into decisions: a prediction of the state and the payoff or utility from different actions in that state. The payoff is unknown, and can only be learned through experiencing a state. It is possible to learn that there is a dominant action across all states, in which case the prediction has little value. Therefore, if predictions cannot be credibly contracted upfront, the seller cannot extract the full value, and instead charges the same price to all buyers.

Keywords: Prediction, Judgment, Pricing, Subscription, Artificial Intelligence

JEL Classification: D40, D81, L12

Suggested Citation

Agrawal, Ajay and Gans, Joshua S. and Goldfarb, Avi, Human Judgment and AI Pricing (January 28, 2018). Rotman School of Management Working Paper No. 3111819. Available at SSRN: https://ssrn.com/abstract=3111819 or http://dx.doi.org/10.2139/ssrn.3111819

Ajay Agrawal

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Avi Goldfarb

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8604 (Phone)
416-978-5433 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
277
rank
101,527
Abstract Views
799
PlumX Metrics