Behavioral AI

Implement AI and big data at your organization using principles from behavioral economics

In Behavioral AI: Unleash Decision Making with Data, behavioral economist Dr. Rogayeh Tabrizi delivers an intuitive roadmap to help organizations disentangle the complexity of their data to create tangible and lasting value. The book explains how to balance the multiple disciplines that power AI and behavioral economics using a combination of the right questions and insightful problem solving.

You'll learn why intellectual diversity and combining subject matter experts in psychology, behavior, economics, physics, computer science, and engineering is essential to creating advanced AI solutions. You'll also discover:

• How behavioral economics principles influence data models and governance architectures and make digital transformation processes more efficient and effective
• Discussions of the most important barriers to value in typical big data and AI projects and how to bring them down
• The most effective methodology to help shorten the long, wasteful process of “boiling the ocean of data”

An exciting and essential resource for managers, executives, board members, and other business leaders engaged or interested in harnessing the power of artificial intelligence and big data, Behavioral AI will also benefit data and machine learning professionals.

Preface xi

Chapter 1 Magic Happens at the Intersections 1

Asking the Right Questions: Data, Intuition, and Strategy 3

Simplifying the Complexity 6

Connecting the Dots 8

Uncovering Hidden Patterns: Models and Algorithms in Action 10

Decoding Consumer Behavior: The Interplay of Psychology and Economics 11

Empowering Behavioral Economics: The Synergy of Data Analytics, ML, and AI 14

Crafting a Customer- Centric Paradigm: The Fusion of Technology and Behavioral Insights 17

Chapter 2 It Is All Connected: Behavioral Economics, Decision-Making, Biases, and Heuristics 19

History and Origins of Behavioral Economics 20

Early Days 21

Entering Mainstream Economics 23

Current Research and Practical Applications 26

Back to the Beginning 30

Psychology of Decision- Making 33

Dual- Process Theories 33

Heuristics and Biases 35

Noise 39

Prospect Theory 40

Nudging 42

Experimentation 46

How It Works 47

Uber and Experimentation 49

Chapter 3 Minimal Data, Maximal Impact: From Big Data to Minimum Viable Data 53

How Much Data Are We Talking About? Lots and Lots 55

You Do Not Need a Lot of Data to Get Started, You Need the MVD 58

Asking the Right Questions, Again! 59

Synthetic Data: What It Is and What It Isn’t 63

Survey Data to the Rescue 67

Chapter 4 Building Intelligence: AI and ML Essentials, Transforming Data into Intelligence 73

Classical AI 76

ML 78

Deep Learning 82

Generative AI 86

Machine Intelligence and Biologically Inspired Models 90

Chapter 5 Real-World Impact: Harnessing AI and ml for Practical Solutions 95

Unleashing the Full Potential of AI: Beyond the Hype 96

Rethinking Segmentation: Beyond Demographics and Life Stages 97

Uncovering Unexpected Customer Patterns 101

Predicting Intent and Mapping Customer Journeys 104

Overcoming Challenges in Predicting Customer Intent 106

Predicting and Managing Returns 108

The Power and Nuances of Recommendation Models 111

Broadening Horizons: Beyond Category Killers 114

Enhancing In- Store Experience with Recommendation Models 116

Leveraging Propensity Models for Targeted Campaigns 118

Personalized Pricing: Influencing Behaviors and Financial Outcomes 121

Behavioral Economics in Personalized Pricing Strategies 124

Forecasting: Understanding the Dynamics of Demand 127

The Power of Forecasting and Optimization 131

Transparent MMMs 132

Ensembling Models for Enhanced Forecasting 133

The Interplay of Demand Forecasting and Inventory Optimization 133

Conclusion 135

Chapter 6 Decoding Complexity: Leveraging Systems Thinking in Modern Organizations 137

Only a Wet Baby Likes Change: Loss Aversion + Status Quo Bias 140

It Gets Better! Commitment Device, Peer Effect, and Sunk Cost Fallacy 145

Conclusion 151

Chapter 7 Unlocking Scale: Overcoming Operational and Organizational Complexity in Scaling AI Projects 155

Enablers of Success 156

Communication and Intellectual Diversity 159

Building Trust, Experimentation, and Adoption 164

Interpretation Layers 166

The Power of Experimentation 169

Measuring ROI Through Experimentation 171

Conclusion 173

Epilogue 175

Notes 179

Additional Reading 189

Bibliography 197

Acknowledgments 205

About the Author 207

Index 209

ROGAYEH TABRIZI, PHD, is the founder and CEO of Theory+Practice, a technology company with deep expertise in AI and data and specializes in helping large CPG and Retail enterprises utilize their data to radically enhance revenue ­optimization decisions. She has a PhD in Economics and a MSc in Particle Physics and worked on the ATLAS detector at CERN.

Modern enterprises understand that their data is valuable but struggle to translate that basic idea into effective implementations and actionable insights.

In Behavioral AI: Unleash Decision Making with Data, behavioral economist Dr. Rogayeh Tabrizi delivers a practical roadmap that helps companies reduce the complexity of their data and helps them create tangible and long-lasting value from it. She explains how to balance the multiple disciplines that give artificial intelligence (AI) its power and demystifies behavioral economics using a combination of intuitive questions and insightful problem solving.

You’ll discover why intellectual diversity and subject matter combinations from a wide variety of fields—including psychology, behavior, economics, physics, computer science, and engineering—are essential to creating useful AI solutions. You’ll also learn how behavioral economics principles influence data models and governance architectures and make digital transformation processes more efficient and effective.

Behavioral AI offers discussions of the most important barriers to value in typical big data and AI projects, as well as how to overcome them. It also provides an effective methodology to help shorten the long, wasteful process of “boiling the ocean of data,” helping your company focus on the data that actually leads to real-world solutions.

An essential and exciting new resource for executives, managers, board members, entrepreneurs, founders, and other business leaders, this book will earn a place in the libraries of data and machine learning professionals with an interest in harnessing the power of AI and big data.

Turn your organization’s data into concrete, hands-on solutions using principles from behavioral economics

Behavioral AI: Unleash Decision Making with Data is a hands-on playbook for enterprises who want to turn their customer and client data into actionable insights and lasting business value. This is not a high-level, abstract discussion of “big data” or artificial intelligence. It is a practical roadmap designed to use a variety of academic disciplines to help companies develop real-world AI and data solutions for everyday business use.

Praise for BEHAVIORAL AI

“‘Nullius in verba’ is the motto of the Royal Society, which means ‘no one’s words’. At no time in history does humankind have as much data as we do now and perhaps at no time in history are we challenged with what to do with it. A lot has been written about use of data and a lot has been written on how to decode behavior for actionable insights, but rarely the two have come together. Rogayeh has masterfully captured the nexus of data, AI and behavior in this book. Apart from simplifying new and emerging concepts, she has layered how the model works within practice. A must-read for anyone who embraces ‘nullius in verba’ and uses ‘impossible’ as a stepping stone.”
—SHAKIR MOIN, President, Marketing, Coca-Cola North America

“Behavioral AI is the ultimate playbook for unlocking the soul of data. Tabrizi offers a fresh, incisive look at the intersection of AI and behavioral science, merging the art of human intuition with the rigor of data. This book takes you behind the algorithms and into the heart of decision making, showing that the real magic lies where data meets human psychology. A must-read for anyone looking to harness AI to its fullest potential—not just for data but for meaningful insight.”
—DAVID J. KATZ, EVP & Chief Marketing Officer, Randa Apparel & Accessories

“An enlightening look at how economic principles and AI can combine to make a real difference, Behavioral AI offers practical tools and fresh perspectives for understanding consumer behavior at its core. This book makes it clear that successful AI isn’t just about technology or collecting more data—it’s about understanding people and asking better questions. Behavioral AI is a vital resource for any leader looking to build connections that last and understand the science behind the intersection of AI and behavioral economics.”
—MENG CHEE, former EVP & CPO, Walmart