📈 What markets are telling us about ChatGPT as a general purpose technology

Also: 5 Quick Questions for … transportation technology researcher Brent Skorup

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The Essay

Robots on the floor of the New York Stock Exchange, via Midjourney

📈 What markets are telling us about ChatGPT as a general purpose technology

It’s a special thing when economists label some new technology as a “general purpose technology.” In the seminal 1992 paper on GPTs, “General purpose technologies ‘Engines of growth’?,” economists Timothy F. Bresnahan and Manuel Trajtenberg observe, “Whole eras of technical progress and economic growth appear to be driven by a few key technologies, which we call General Purpose Technologies. Thus the steam engine and the electric motor may have played such a role in the past, whereas semiconductors and computers may be doing as much in our era.” Specifically, they then explain, GPTs are used throughout an economy in a way that boosts productivity.

It’s early days for generative AI — which can create realistic text, images, and audio —but the early signs are promising with initial studies showing big productivity boosts for writers, coders, and customer service. And as I’ve written many times, my goal for AI-machine learning more broadly is as a super research assistant to aid scientists and technologists. That is the application with both the most promise and the most difficulty to forecast.

Again, early days, but another sign of the GPT-ness of ChatGPT and GenAI comes in the new working paper “Generative AI and Firm Values” by Andrea L. Eisfeldt, Gregor Schubert, and Miao Ben Zhang. The paper uses a novel firm-level measure of workforce exposure to GenAI, which is based on the share of workers in occupations that are likely to be affected by GenAI technologies. The paper then validates this measure by showing that it’s correlated with the frequency of mentions of GenAI in earnings calls. From there, the economists construct portfolios that are long on firms with higher exposure and short on firms with lower exposure, and examines their returns around the release of ChatGPT on Nov. 30, 2022. From the paper:

Market prices indicate that the arrival and diffusion of large language models and Generative AI represent a major technology shock with important effects on the overall value of firms, as well leading to winners and losers. This paper uses occupational exposures to Generative AI, along with firm-level measures of occupational composition, to assess the exposure to Generative AI innovations at the firm level for publicly traded U.S. corporations. We find that the effect of the release of ChatGPT on firm values was large, driving a difference in firm returns of approximately .4% daily, translating to over 100% on an annualized basis. These differences were realized both within and across industries, and display wide variation which is correlated with firm characteristics such as organizational capital or gross profitability. According to investors, ChatGPT represents an important shock to corporate valuations.