DAO-ISEM-IORA Seminar Series: Robert Shumsky

Robert Shumsky

BIZ2 0511

Use it or Slowly Lose it: Expertise Atrophy with Organizational AI Usage

As organizations adopt generative AI, its use can improve productivity but reliance can lead to atrophy of worker knowledge and skills over time. The challenge is how to incentivize human oversight and maintain long-run expertise. Using a principal-agent framework, we study optimal incentive design when workers can exert costly effort to verify and correct imperfect AI output, where effort both improves current performance and preserves expertise. A central managerial challenge is that improving AI quality makes oversight harder to motivate, since acceptable outcomes increasingly occur even when workers shirk. Consequently, profit-maximizing compensation can be non-monotonic in AI quality, skill, or return on effort, and organizations may even be better off, in terms of profitability, with worse AI systems. More subtle implications arise when skills decay with AI reliance. First, due to contracting frictions, we find that firms may (rationally) allow expertise to deteriorate by substituting higher effort from non-experts for expertise, leading to significant performance losses compared to a system in which both effort and expertise can be prescribed. Second, when tasks are relatively less complex with short learning curves and high returns on effort for low-skilled workers, then the risk of skill atrophy can mitigate these frictions. For such tasks workers are self-motivated to preserve expertise, so that higher rates of potential skill loss can, counterintuitively, increase profit. These insights highlight a managerial “danger zone” in which low-to-moderate skill decay is easily overlooked yet leads to substantial long-term losses, underscoring when proactive investment in human expertise is most valuable.

Robert Shumsky is a Professor of Operations Management at the Tuck School of Business at Dartmouth and is faculty co-director of Health Care Management Education at Dartmouth. His research focuses on the improvement of service operations, and he has written about capacity estimation and control, how to allocate work to improve quality, and how to coordinate service supply chains. He has conducted research on the U.S. air traffic management system and studied transportation operations for state agencies and the Federal Aviation Administration. He has also served as a consultant for both manufacturing and service operations, including call centers and health care providers. Professor Shumsky has published articles in many academic journals including Operations Research, Management Science, and the Proceedings of the National Academy of Science. He currently serves in various editorial positions for several academic journals. He received his PhD degree in Operations Research from MIT.