The revolution is here: AI in economics!

AI to improve inefficiency

In complex environments, it is challenging to learn enough about the underlying characteristics of transactions so as to design the best institutions to efficiently generate gains from trade. In recent years, Artificial Intelligence has emerged as an important tool that allows market designers to uncover important market fundamentals, and to better predict fluctuations that can cause friction in markets.

How Artificial Intelligence and Machine Learning Can Impact Market Design
Authors: Paul Milgrom, Steven Tadelis,
From: Stanford University, University of California-Berkeley

A new way to calculate inflation

Quality adjustments can help more accurately measure the rate of inflation when the underlying panel of products is unbalanced. However, the agencies lack techniques for constructing quality adjustments for all of the prices in the US economy. Bajari and al. use a unique panel of data from Amazon which has product descriptions, customer reviews and pictures in order to construct data for hedonic adjustments for clothing prices. To predict prices they finally use a variety of ML methods which accommodate high dimensional data, allow for non-linearity and search for optimal model specifications in a high dimensional space. They find these methods to have a considerably higher predictive accuracy than standard linear regression models.

A Machine Learned, Real Time Measure of the Rate of Inflation
Authors: Patrick Bajari, Victor Chernozhukov, Ramon Huerta, Ashish Mishra, Bernhard Schoelkopf
From: University of Washington, Massachusetts Institute of Technology, University of California-San Diego, Amazon, Max Planck Institute