Artificial Intelligence and Scientific Discovery: A Model of Prioritized Search

42 Pages Posted: 14 Aug 2023 Last revised: 15 Aug 2023

See all articles by Ajay K. Agrawal

Ajay K. Agrawal

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

John McHale

University of Galway

Alexander Oettl

Georgia Institute of Technology - Strategic Management Area

Date Written: August 2023

Abstract

We model a key step in the innovation process, hypothesis generation, as the making of predictions over a vast combinatorial space. Traditionally, scientists and innovators use theory or intuition to guide their search. Increasingly, however, they use artificial intelligence (AI) instead. We model innovation as resulting from sequential search over a combinatorial design space, where the prioritization of costly tests is achieved using a predictive model. We represent the ranked output of the predictive model in the form of a hazard function. We then use discrete survival analysis to obtain the main innovation outcomes of interest – the probability of innovation, expected search duration, and expected profit. We describe conditions under which shifting from the traditional method of hypothesis generation, using theory or intuition, to instead using AI that generates higher fidelity predictions, results in a higher likelihood of successful innovation, shorter search durations, and higher expected profits. We then explore the complementarity between hypothesis generation and hypothesis testing; potential gains from AI may not be realized without significant investment in testing capacity. We discuss the policy implications.

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Suggested Citation

Agrawal, Ajay K. and McHale, John and Oettl, Alexander, Artificial Intelligence and Scientific Discovery: A Model of Prioritized Search (August 2023). NBER Working Paper No. w31558, Available at SSRN: https://ssrn.com/abstract=4539935

Ajay K. Agrawal (Contact Author)

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

John McHale

University of Galway ( email )

University Road
Galway
Ireland

Alexander Oettl

Georgia Institute of Technology - Strategic Management Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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