Price-setting algorithms play a major role in today’s economy. But some experts worry that, without careful checks, these programs might inadvertently learn to discriminate against minority groups and possibly collude to artificially inflate prices. Now a new study suggests that an economic tool dating back to ancient Rome could help curb this very modern concern.
When algorithms adopt such tactics in pursuit of maximum profits, experts often refer to these programs’ aggressive approach as “greedy.” For years, policy makers and tech executives have sought to balance the inherent greediness of algorithms’ logic with the human-level fairness of their decisions.
The authors of the new Tsinghua University paper sought scientific evidence that such controls could not only protect consumers from algorithmic price discrimination but also allow companies using these digital tools to maintain reasonable profits. The researchers also wanted to see how price controls would affect the “surplus” of both the producers and consumers. In this context, a surplus refers to the entire monetary benefit each party derives from a transaction.
When a human rather than a random number generator sets the cost, knowing a consumer’s WTP in advance allows the seller to personalize prices—and to charge more to those whom the seller knows will be willing to pony up. Pricing algorithms achieve a similar advantage when they estimate an individual’s or group’s WTP by harvesting data about them from big tech companies, such as search engine operators or social media platforms.
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