The Role of Predictions in Acquisition Decision Making: The Strategic Value of AI-Driven Foresight.

This article investigates the role of predictions, particularly those generated by artificial intelligence (AI) and machine learning (ML), in acquisition decision making by analyzing stock market reactions to merger and acquisition (M&A) announcements. It proposes that AI-driven predictions capture the collective wisdom of market participants, providing valuable foresight that can improve deal selection and target identification despite their probabilistic nature. Empirical tests using a large sample of U.S. acquisitions from 1976 to 2022 demonstrate that predicted market reactions correlate positively with actual outcomes and that larger deviations between predicted and actual reactions—termed prediction errors—are associated with longer deal completion times, reflecting increased managerial information gathering. The findings suggest that AI-based predictive capabilities complement rather than replace managerial judgment, enhancing strategic decision making ex ante and influencing adaptive learning ex post, with implications for the integration of AI in complex, uncertain strategic contexts.