Executive summary 

The public sector is about to enter into the “third wave” of artificial intelligence (AI), according to the Defense Advanced Research Projects Agency (DARPA). Agencies are preparing to move beyond “reasoning over narrowly defined problems” (the first wave) and “nuanced classification and prediction capabilities” (the second wave) toward “AI that understands and reasons in context.” 
The last two words of that sentence–”in context”–are critical. To advance to the third phase, machines must be able to understand the context in which they are making decisions — and be able to show users how they came to their conclusions. 

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