IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2601.18732.html

Optimal Use of Preferences in Artificial Intelligence Algorithms

Author

Listed:
  • Joshua S. Gans

Abstract

Machine learning systems embed preferences either in training losses or through post-processing of calibrated predictions. Applying information design methods from Strack and Yang (2024), this paper provides decision problem agnostic conditions under which separation training preference free and applying preferences ex post is optimal. Unlike prior work that requires specifying downstream objectives, the welfare results here apply uniformly across decision problems. The key primitive is a diminishing-value-of-information condition: relative to a fixed (normalised) preference-free loss, preference embedding makes informativeness less valuable at the margin, inducing a mean-preserving contraction of learned posteriors. Because the value of information is convex in beliefs, preference-free training weakly dominates for any expected utility decision problem. This provides theoretical foundations for modular AI pipelines that learn calibrated probabilities and implement asymmetric costs through downstream decision rules. However, separation requires users to implement optimal decision rules. When cognitive constraints bind, as documented in human AI decision-making, preference embedding can dominate by automating threshold computation. These results provide design guidance: preserve optionality through post-processing when objectives may shift; embed preferences when decision-stage frictions dominate.

Suggested Citation

  • Joshua S. Gans, 2026. "Optimal Use of Preferences in Artificial Intelligence Algorithms," Papers 2601.18732, arXiv.org.
  • Handle: RePEc:arx:papers:2601.18732
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2601.18732
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Autor & Andrew Caplin & Daniel Martin & Philip Marx, 2025. "Misaligned by Design: Incentive Failures in Machine Learning," Papers 2511.07699, arXiv.org.
    2. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    3. Nikhil Agarwal & Alex Moehring & Pranav Rajpurkar & Tobias Salz, 2023. "Combining Human Expertise with Artificial Intelligence: Experimental Evidence from Radiology," NBER Working Papers 31422, National Bureau of Economic Research, Inc.
    4. G. Elliott & C. Granger & A. Timmermann (ed.), 2006. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 1, number 1.
    5. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
    6. Andrew Caplin, 2025. "An Introduction to Cognitive Economics," Springer Books, Springer, number 978-3-031-73042-9, December.
    7. Andrew Caplin, 2025. "Introduction to Cognitive Economics," Springer Books, in: An Introduction to Cognitive Economics, chapter 0, pages 1-13, Springer.
    8. Gneiting, Tilmann & Raftery, Adrian E., 2007. "Strictly Proper Scoring Rules, Prediction, and Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 359-378, March.
    9. Ashesh Rambachan & Jon Kleinberg & Jens Ludwig & Sendhil Mullainathan, 2020. "An Economic Perspective on Algorithmic Fairness," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 91-95, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Petropoulos, Fotios & Apiletti, Daniele & Assimakopoulos, Vassilios & Babai, Mohamed Zied & Barrow, Devon K. & Ben Taieb, Souhaib & Bergmeir, Christoph & Bessa, Ricardo J. & Bijak, Jakub & Boylan, Joh, 2022. "Forecasting: theory and practice," International Journal of Forecasting, Elsevier, vol. 38(3), pages 705-871.
      • Fotios Petropoulos & Daniele Apiletti & Vassilios Assimakopoulos & Mohamed Zied Babai & Devon K. Barrow & Souhaib Ben Taieb & Christoph Bergmeir & Ricardo J. Bessa & Jakub Bijak & John E. Boylan & Jet, 2020. "Forecasting: theory and practice," Papers 2012.03854, arXiv.org, revised Jan 2022.
    2. Warne, Anders, 2023. "DSGE model forecasting: rational expectations vs. adaptive learning," Working Paper Series 2768, European Central Bank.
    3. Lahiri, Kajal & Yang, Liu, 2013. "Forecasting Binary Outcomes," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1025-1106, Elsevier.
    4. Anne Sofie Jore & James Mitchell & Shaun P. Vahey, 2010. "Combining forecast densities from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 621-634.
    5. Keith Sill, 2014. "Forecast disagreement in the Survey of Professional Forecasters," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 15-24.
    6. Szafranek, Karol, 2019. "Bagged neural networks for forecasting Polish (low) inflation," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1042-1059.
    7. Costa, Alexandre Bonnet R. & Ferreira, Pedro Cavalcanti G. & Gaglianone, Wagner P. & Guillén, Osmani Teixeira C. & Issler, João Victor & Lin, Yihao, 2021. "Machine learning and oil price point and density forecasting," Energy Economics, Elsevier, vol. 102(C).
    8. Constandina Koki & Loukia Meligkotsidou & Ioannis Vrontos, 2020. "Forecasting under model uncertainty: Non‐homogeneous hidden Markov models with Pòlya‐Gamma data augmentation," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(4), pages 580-598, July.
    9. Bergemann, Dirk & Ottaviani, Marco, 2021. "Information Markets and Nonmarkets," CEPR Discussion Papers 16459, C.E.P.R. Discussion Papers.
    10. Andreas C Drichoutis & Rodolfo M Nayga, 2020. "Economic Rationality under Cognitive Load," The Economic Journal, Royal Economic Society, vol. 130(632), pages 2382-2409.
    11. Malte Knüppel & Fabian Krüger, 2022. "Forecast uncertainty, disagreement, and the linear pool," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(1), pages 23-41, January.
    12. Zanetti Chini, Emilio, 2018. "Forecasting dynamically asymmetric fluctuations of the U.S. business cycle," International Journal of Forecasting, Elsevier, vol. 34(4), pages 711-732.
    13. Weronika Nitka & Rafał Weron, 2023. "Combining predictive distributions of electricity prices. Does minimizing the CRPS lead to optimal decisions in day-ahead bidding?," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 33(3), pages 105-118.
    14. Ravazzolo Francesco & Vahey Shaun P., 2014. "Forecast densities for economic aggregates from disaggregate ensembles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 18(4), pages 367-381, September.
    15. Yang, Dazhi & van der Meer, Dennis, 2021. "Post-processing in solar forecasting: Ten overarching thinking tools," Renewable and Sustainable Energy Reviews, Elsevier, vol. 140(C).
    16. Barbara Rossi, 2021. "Forecasting in the Presence of Instabilities: How We Know Whether Models Predict Well and How to Improve Them," Journal of Economic Literature, American Economic Association, vol. 59(4), pages 1135-1190, December.
    17. Obidzinski, Marie & Oytana, Yves, 2024. "Artificial intelligence, inattention and liability rules," International Review of Law and Economics, Elsevier, vol. 79(C).
    18. Alfarano Simone & Milakovic Mishael, 2012. "Identification of Interaction Effects in Survey Expectations: A Cautionary Note," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(4), pages 1-23, October.
    19. Jon Ellingsen & Vegard H. Larsen & Leif Anders Thorsrud, 2020. "News Media vs. FRED-MD for Macroeconomic Forecasting," CESifo Working Paper Series 8639, CESifo.
    20. Hilde C. Bjørnland & Francesco Ravazzolo & Leif Anders Thorsrud, 2015. "Forecasting GDP with global components. This time is different," Working Papers No 1/2015, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2601.18732. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.