Frontiers: Can an Artificial Intelligence Algorithm Mitigate Racial Economic Inequality? An Analysis in the Context of Airbnb
by Shunyuan Zhang, Nitin Mehta, Param Vir Singh, Kannan Srinivasan
Originally published in Marketing Science Volume 40, Issue 5, September-October 2021, Pages 813-1007, ii
We study the effect of Airbnb’s smart-pricing algorithm on the racial disparity in the daily revenue earned by Airbnb hosts. Our empirical strategy exploits Airbnb’s introduction of the algorithm and its voluntary adoption by hosts as a quasinatural experiment. Among those who adopted the algorithm, the average nightly rate decreased by 5.7%, but average daily revenue increased by 8.6%. Before Airbnb introduced the algorithm, White hosts earned $12.16 more in daily revenue than Black hosts, controlling for observed characteristics of the hosts, properties, and locations. Conditional on its adoption, the revenue gap between White and Black hosts decreased by 71.3%. However, Black hosts were significantly less likely than White hosts to adopt the algorithm, so at the population level, the revenue gap increased after the introduction of the algorithm. We show that the algorithm’s price recommendations are not affected by the host’s race—but we argue that the algorithm’s race blindness may lead to pricing that is suboptimal and more so for Black hosts than for White hosts. We also show that the algorithm’s effectiveness at mitigating the Airbnb revenue gap is limited by the low rate of algorithm adoption among Black hosts. We offer recommendations with which policy makers and Airbnb may advance smart-pricing algorithms in mitigating racial economic disparities.
- Shunyuan Zhang, Harvard Business School, Harvard University, Boston, Massachusetts
- Nitin Mehta, Rotman School of Management, University of Toronto, Toronto, Ontario, Canada
- Param Vir Singh, Tepper School University, Carnegie Mellon University, Pittsburgh, Pennsylvania
- Kannan Srinivasan, Tepper School University, Carnegie Mellon University, Pittsburgh, Pennsylvania