What is economics? What is “value”?
Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth or value. Defining value, however, is a tricky proposition. Most organizations have historically relied upon traditional financial measures of value creation, such as:
- Gross Profit Margin
- Operating Profit Margin
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Return on Investment (ROI)
- Return on assets (ROA)
- Debt-to-equity ratio
- Earnings per Share (EPS)
As discussed in Chapter 5, many of these financial measures are lagging indicators; their results depend on the performance of related independent or leading indicators. Organizations must embrace a broader range of measures that define value than just financial measures. If not, these organizations risk creating AI models that result in severe confirmation bias and potentially dangerous unintended consequences.Organizations that want to embrace AI as an engine of meaningful...