INTRODUCTION TO AI for BUSINESS

MODULE 1

What AI is and is not – Terms and Definitions

I. Definition
- Pushing the frontier of making computers increasingly capable in solving complex
decision problems
- Frontier of computational advancements that references human intelligence in
addressing ever more complex decision-making problems
AI  Machine learning (allow computers to learn from data)

II. Decision making

 automate some aspects of human decision making
(Ex: Netflix that preselects movies and TV shows for you)

III. Reference human intelligence

 Human intelligence serves as a standard for AI
 AI try to emulate the capabilities of human
Turing test: How a machine is intelligent?  look at its observable behavior (ex: chatbot)

IV. Algorithms
- An AI constructed from a large number of simple instructions can be capable of
solving highly complex problems
- As computational power increases and our algorithms become more advanced, we
are pushing the performance frontier (ex: execution of tasks to which Ai is applied is
improving)
- Current generation of AI systems is successfully applied to solve specific problems
from a wide variety of domains (driving, medical ect) BUT need to collect large
amount of data...

V. Managing AI
The further we push this frontier, the more autonomous and capable of learning these systems
will become.

“Managing AI means managing a frontier of both increasing performance and increasing

scope, while having to deal with ever-increasing levels of learning, autonomy and
inscrutability”

Computers are very fast in executing simple algorithmic instruction.

An AI system built from simple basic instruction can have capabilities that the individual
elements do not have in isolation. It can, hence, show complex behaviors that far exceed the
complexity of its basic instruction.

- AI systems can act without human intervention

- AI systems can improve through data and experience
- The inner functioning of AI systems is often unintelligible to humans
Machine learning has become synonymous with modern AI (=current edge of computation)

Moving frontier  2 dimensions

- Performance (better power, algorithmic)
- Scope (number and variety of problems from different domains)
The frontier expands over time

Brief and unfinished history

AI tries to emulate human mind, its capabilities are:

- Problem solving/planning
- Natural language understanding
- Learning
- Reasoning

Golden age  Knowledge-based AI  Behavioral AI  Agent-based AI  Machine

learning

I. Golden age
Intelligence: Aggregate of individual components
Paradigm: Search
Application: Nothing

II. Knowledge-based AI
Intelligence: Primacy of knowledge and reasoning
Paradigm: Rules, logic & knowledge representation
Application: Expert systems (medical diagnostic tool)

III. Behavioral AI
Intelligence: interaction of simple behaviors
Paradigm: Actionist
Application: Robots

IV. Agent-based AI
Intelligence: Economic Rationality
Paradigm: Software agents + cooperation with humans
Application: Solvers

V. Machine learning
Intelligence: Learning from data/experience
Paradigm: Computing outputs from inputs without recipe
Application: Image recognition, photography, autonomous driving
Supervised learning
 Aim to predict or explain a specific target variable
EX: Finding the best apartment in Paris (cost, location, transport etc)

I. Linear regression

- When the target variable takes infinitely many possible values

- explain the expected value of the target variable as a function of the feature variables.
- the linear regression model is easy to predict given observed features

II. Logistic Regression

- when the target variable takes limited possible values, the most standard case being two
values
- In terms of predictions, the logistic model allows classifying the target variable when only the
features are observed.

III. Decision Trees = prediction model

IV. Random Forests = prediction model

Unsupervised Learning
 Do not aim to predict or explain a specific target variable

Ex: customized newsletters for each of the customers based on their products they really like

- Unsupervised learning algorithms will gather together profiles that are close to each other in the same
group, but search for different groups that are as different as possible.

I. Hierarchical clustering
Quite popular but is computationally costly when the number of observations is large.

II. K-Means Algorithm

The number of clusters needs to be pre-specified

But many other solutions exists…

Natural Language Processing

 NLP combines linguistics and computer science to program computers so that they can process and
analyze large amounts of natural language data.

I. How does NLP works?

- Transforming the text in lower case letters + removal of stop words
- Clean the text for spelling errors
- Tokenization (separate each sentence in a text into words)
- Stemming (words transformed into their root)
- Convert word into numerical data = BAG OF WORDS

II. Bag of words

- Create a data matrix with as many columns as there are words
- For every sentence, we have a different line in the matrix (put value 1 in each column for
each word)

III. Natural Language Generation

 Process of producing meaningful phrases and sentences in the form of natural language
- Making predictions based on word frequencies and conditional probabilities

Deep Learning

The term neural takes inspiration from the human brain

I. Why Artificial Neural networks have become popular?

1st: Computing Power

2nd: Datafication of our society

We don’t need to program ourselves explicitly how to obtain the parameter values, the computer can
obtain them autonomously when labeled data is available  LEARNING

Perceptron = inputs (features data), synaptic weights or parameters + output (sum of inputs multiplied
by the weights).

II. Example
EX: Image recognition (classified gender, age)  Automating the task = doing it 24h; classified very
fast; keep easily track of the changes.

BUT can-do mistakes:

- Need to combine more pixels
solution  adding more layers
- Linear combination of inputs does not allow to create nonlinearities (ex: insurance that
refuse car insurance for people between 20 and 30yo)
Solution  activation function

Deep learning = train the network

CCL: Artificial neural networks are part of machine learning techniques, mostly used in supervised
learning. Require loads of labeled data (2nd reason) and computing power (1st reason) to train them.
MODULE 3

Leveraging the value of AI (Prediction, Judgment, Action)

 Need to think about “Prediction machine”
Computing power + data = cheaper and more valuable
We can use AI to solve problems in a wider variety of domains.

I. Why is that such a big deal?

 AI can make prediction less costly and more valuable, managers has the opportunity to transform
what was expensive into something that is cheap, abundant and superior.

EX: ESSEC Admission process with AI (predicts best candidates)

AI CANVAS = Support the decomposition of tasks

- Prediction (=identify the key uncertainty that you would like to resolve)
- Judgement (=Determine the payoffs to being right VS wrong)
- Action (=What are the actions that can be chosen?)
- Outcome (=Choose the measure of performance that you want to use to select)
- Training (=What data do you need on past inputs in order to train your AI?)
- Inputs to train (=What data do you need to generate prediction?)
- Feedback (=improve your algorithm)

CCL: You need to decompose tasks.

Governance of AI projects

Challenge 1: AI development – Defining what the AI is supposed to do

- AI is the technology that learn behaviors from data
- Do complex task
- Intelligent system
- Simple computations very fast
- Need to decompose a complex task into smaller problems
- Project managers need to think like a “machine”

Challenge 2: AI training – Balancing control and autonomy

- Need autonomy
- Make sure enough high-quality data + high quality training data is available

Challenge 3: Measuring AI performance

- How close the AI predicts the truth