Study: Airbnb’s ‘Smart Pricing’ Algorithm For Hosts Made Racial Disparities Worse

Study: Airbnb’s ‘Smart Pricing’ Algorithm For Hosts Made Racial Disparities Worse

Smart Pricing

Study On Airbnb's 'Smart Pricing' Algorithm For Hosts Made Racial Disparities Worse Image: Airbnb

Black Airbnb hosts and guests have long complained about racial discrimination when using the online marketplace for lodgings. Airbnb’s “Smart Pricing” algorithm has made racial disparities worse, according to a recent study.

The platform’s optional “Smart Pricing” feature adjusts the cost of a night’s stay based on current demand and allows hosts to set a minimum price. Launched in 2015, it was supposed to help users secure more bookings.

However, Black hosts are hesitant to use the tool, and the overall effect has been to widen racial disparities, The Financial Times reported.

Researchers at Carnegie Mellon University polled more than 9,000 Airbnb hosts for the study, “Can an AI Algorithm Mitigate Racial Economic Inequality? An Analysis in the Context of Airbnb.” The study was completed in January 2021.

Reasearchers found that when hosts chose to use the pricing feature, the algorithm decreased racial disparities in earnings caused by lower demand for Black-owned homes by 71 percent.

“The most surprising finding was that even though the algorithm was benefiting both Black and white [hosts] more, it led to greater social inequality in the whole population, because of significantly [lower] adoption rates amongst Black hosts,” said Param Vir Singh, the paper’s author and a professor at Carnegie Mellon.

He explained, “So even a well-meaning algorithm can lead to greater social inequality…there are unintended consequences of algorithms.” 

The study’s findings have prompted renewed calls for independent regulators and academics to be given access to internal Airbnb data in order to independently assess racial discrepancies on the platform. 

“Discrimination analysis shouldn’t be left to tech companies self-regulating,” said non-profit civil rights advocacy group Color of Change. “In order to truly root out racial bias within tech companies’ platforms and products, regulators…must have access to company data that analyses the experiences of Black users.”

For the study, Singh and his team randomly selected 9,396 Airbnb properties in 324 zip codes, mostly in seven large U.S. cities, to analyze their earnings. The study was conducted from July 2015 to August 2017. 

Before the introduction of Smart Pricing, white hosts on Airbnb made on average $12.16 more than Black hosts. When hosts used the Smart Pricing algorithm, the revenue disparity was reduced to $3.46, researchers said. Yet use among Black hosts was 41 percent lower than for white hosts, which meant that overall, the revenue gap between the Black and white hosts actually increased to $14.30 after the introduction of the algorithm, The Financial Times reported.

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“Airbnb could try to get [Black hosts] to use the algorithm and cover any losses for a few weeks or months, to give them confidence that the algorithm is actually valuable to them. It can increase adoption and benefit both Airbnb and these hosts,” Singh said.

Regulation on smart technology is on the horizon. The European Union proposed the Artificial Intelligence Act. The U.S. Federal Trade Commission has warned companies against using biased artificial intelligence, Verge reported.

Artificial intelligence is an emerging area of law, Fortune reported. A number of large law firms are developing practice specialties around A.I.