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Machine Predictions and Human Decisions with Variation in Payoffs and Skills

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Listed:
  • Michael Allan Ribers
  • Hannes Ullrich
Abstract
Human decision-making differs due to variation in both incentives and available information. This generates substantial challenges for the evaluation of whether and how machine learning predictions can improve decision outcomes. We propose a framework that incorporates machine learning on large-scale administrative data into a choice model featuring heterogeneity in decision maker payoff functions and predictive skill. We apply our framework to the major health policy problem of improving the efficiency in antibiotic prescribing in primary care, one of the leading causes of antibiotic resistance. Our analysis reveals large variation in physicians’ skill to diagnose bacterial infections and in how physicians trade off the externality inherent in antibiotic use against its curative benefit. Counterfactual policy simulations show the combination of machine learning predictions with physician diagnostic skill achieves a 25.4 percent reduction in prescribing.

Suggested Citation

  • Michael Allan Ribers & Hannes Ullrich, 2020. "Machine Predictions and Human Decisions with Variation in Payoffs and Skills," Discussion Papers of DIW Berlin 1911, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1911
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    References listed on IDEAS

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    Cited by:

    1. Newham, Melissa & Valente, Marica, 2024. "The cost of influence: How gifts to physicians shape prescriptions and drug costs," Journal of Health Economics, Elsevier, vol. 95(C).
    2. Ashesh Rambachan, 2022. "Identifying Prediction Mistakes in Observational Data," NBER Chapters, in: Economics of Artificial Intelligence, National Bureau of Economic Research, Inc.
    3. Shan Huang & Hannes Ullrich, 2021. "Physician Effects in Antibiotic Prescribing: Evidence from Physician Exits," Discussion Papers of DIW Berlin 1958, DIW Berlin, German Institute for Economic Research.
    4. Shan Huang & Michael Allan Ribers & Hannes Ullrich, 2021. "The Value of Data for Prediction Policy Problems: Evidence from Antibiotic Prescribing," Discussion Papers of DIW Berlin 1939, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Prediction policy; expert decision-making; machine learning; antibiotic prescribing;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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