Artificial Intelligence and Scientific Discovery: A Model of Prioritized Search

Ajay K. Agrawal, John McHale and Alexander Oettl

No 31558, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: O31 O33 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ain, nep-cmp, nep-cse, nep-ino, nep-ppm, nep-sbm and nep-tid
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