Firms are increasingly adopting predictive artificial intelligence (AI) to improve decision-making by combining advanced data analysis with managerial judgment. While AI provides more precise information to support managerial decision-making, its adoption can nevertheless reduce shareholder profits and the aggregate welfare, when both managerial and AI-provided information on project quality are highly precise and managerial bias is uncertain ex ante. In such cases, investment misallocation worsens,...

Advances in artificial intelligence raise fundamental questions about how technology reshapes human skills. Modern AI systems may crowd out active human decision-making; unlike past technologies, such decisions are a key input for training and improving AI models. We develop a framework based on Markov matrices to study how AI substitutes for and augments different human skills, and how decision authority -- whether the technology is...

Firms are increasingly adopting predictive artificial intelligence (AI) to improve decision-making by combining advanced data analysis with managerial judgment. While AI provides more precise information to support managerial decision-making, its adoption can nevertheless reduce shareholder profits and the aggregate welfare, when both managerial and AI-provided information on project quality are highly precise and managerial bias is uncertain ex ante. In such cases, investment misallocation worsens,...