Mirror, Mirror on the Wall: Machine Predictions and Self-Fulfilling Prophecies

39 Pages Posted: 20 Apr 2021

See all articles by Kevin Bauer

Kevin Bauer

Leibniz Institute for Financial Research SAFE

Andrej Gill

Johannes Gutenberg University Mainz

Date Written: April 14, 2021

Abstract

We show that disclosing machine predictions to affected parties can trigger self-fulfilling prophecies. In an investment game, we experimentally vary investors’ and recipients’ access to a machine prediction about recipients’ likelihood to pay back an investment. Recipients who privately learn about an incorrect machine prediction alter their behavior in the direction of the prediction. Furthermore, when recipients learn that an investor has disregarded a machine prediction of no-repayment, this further lowers the repayment amount. We interpret these findings as evidence that transparency regarding machine predictions can alter recipients’ beliefs about what kind of person they are and what investors expect of them. Our results indicate that providing increased access to machine predictions as an isolated measure to alleviate accountability concerns may have unin- tended negative consequences for organizations by possibly changing customer behavior.

Keywords: Algorithmic transparency, algorithmic decision support, human-machine interaction

JEL Classification: C91, D80, D91, O33

Suggested Citation

Bauer, Kevin and Gill, Andrej, Mirror, Mirror on the Wall: Machine Predictions and Self-Fulfilling Prophecies (April 14, 2021). SAFE Working Paper No. 313, Available at SSRN: https://ssrn.com/abstract=3829772 or http://dx.doi.org/10.2139/ssrn.3829772

Kevin Bauer (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Andrej Gill

Johannes Gutenberg University Mainz ( email )

Saarstr. 21
Jakob Welder-Weg 4
Mainz, 55122
Germany

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