What role for economics in predictive analytics?

What role for economics in predictive analytics?

In the age of big data, Robert Lucas's (Nobel Laureate 1995) critique is again relevant. When we change the incentives of firms and consumers, they will change their behavior. Our insights from old data, even when N=all, no longer apply.

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Miklós Koren

November 27, 2014
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  1. 1.

    What role for economics in predictive analytics? Mikl´ os Koren

    CEU MicroData miklos.koren.hu @korenmiklos Budapest BI Forum 2014
  2. 8.

    Is it cheaper for them, or are they more attentive?

    Structural e↵ects on switching costs vs inattention Andr´ as Kiss (CEU) Salience and switching Nov 7, 2014 44 / 56 5
  3. 11.

    2. Economics Economics helps business, economic and social decisions with

    two key ideas. 2a. People respond to incentives If you succeed in changing people’s behavior, insights from old data no longer apply.
  4. 12.

    2. Economics Economics helps business, economic and social decisions with

    two key ideas. 2a. People respond to incentives If you succeed in changing people’s behavior, insights from old data no longer apply. Robert Lucas (Nobel Laureate 1995)
  5. 13.

    2. Economics Economics helps business, economic and social decisions with

    two key ideas. 2a. People respond to incentives If you succeed in changing people’s behavior, insights from old data no longer apply. Robert Lucas (Nobel Laureate 1995) 2b. Systems adapt Not all great ideas scale.
  6. 14.

    2. Economics Economics helps business, economic and social decisions with

    two key ideas. 2a. People respond to incentives If you succeed in changing people’s behavior, insights from old data no longer apply. Robert Lucas (Nobel Laureate 1995) 2b. Systems adapt Not all great ideas scale. (equilibrium feedback effects)
  7. 18.

    3. Implementation Keep it simple. (Atul Gawande: Checklist Manifesto) Look

    out for the incentives of people making the change.
  8. 19.

    Why don’t Pakistani football makers adopt a simple innovation? (Atkin

    et al. 2014) Figure 1: “Buckyball” Design Figure shows the standard “buckyball” design. It combines 20 hexagons and 12 pentagons 10
  9. 20.

    Better arrangement of pentagons would reduce waste by a third

    Figure 11: Cutting Pattern for “O↵set” Four-Pentagon Die                             39.5      54     5       Figure displays the cutting pattern for the four-panel o↵set die. 11
  10. 22.

    Conclusions 1. Models help evaluate counterfactual decisions. 2. Economics (incentives

    work, systems view) improves business and social decisions. 3. Social sciences (economics, sociology, psychlogy) help implementation.
  11. 23.

    Conclusions 1. Models help evaluate counterfactual decisions. 2. Economics (incentives

    work, systems view) improves business and social decisions. 3. Social sciences (economics, sociology, psychlogy) help implementation. Even Amazon needs economists! 12