To err is algorithm: Algorithmic fallibility and economic organisation

An interesting take on the problem of algorithmic reliability: treat it as an economic problem and apply economic analysis tools to it. Algorithms are adopted because they are expected to create value; a rational algorithm adopter will choose algorithms which maximise value. One dimension of that is that if the consequential cost of errors is low, the value of an improved algorithm will also be low (setting an inconvenient appointment time matters less than making an incorrect entitlement decision). More generally, decision making value is maximised when the marginal value of an extra decision equals its marginal cost.

One consequence of taking an economics-based approach which this article doesn’t cover is the importance of externalities: the decision maker about an algorithm (typically an organisation) may pay insufficient weight to the costs and benefits experienced by the subject of a decision (often an individual), so producing a socially sub-optimal outcome.

Juan Mateos-Garcia – NESTA

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