Tag Archives: Markets
#437816 As Algorithms Take Over More of the ...
Algorithms play an increasingly prominent part in our lives, governing everything from the news we see to the products we buy. As they proliferate, experts say, we need to make sure they don’t collude against us in damaging ways.
Fears of malevolent artificial intelligence plotting humanity’s downfall are a staple of science fiction. But there are plenty of nearer-term situations in which relatively dumb algorithms could do serious harm unintentionally, particularly when they are interlocked in complex networks of relationships.
In the economic sphere a high proportion of decision-making is already being offloaded to machines, and there have been warning signs of where that could lead if we’re not careful. The 2010 “Flash Crash,” where algorithmic traders helped wipe nearly $1 trillion off the stock market in minutes, is a textbook example, and widespread use of automated trading software has been blamed for the increasing fragility of markets.
But another important place where algorithms could undermine our economic system is in price-setting. Competitive markets are essential for the smooth functioning of the capitalist system that underpins Western society, which is why countries like the US have strict anti-trust laws that prevent companies from creating monopolies or colluding to build cartels that artificially inflate prices.
These regulations were built for an era when pricing decisions could always be traced back to a human, though. As self-adapting pricing algorithms increasingly decide the value of products and commodities, those laws are starting to look unfit for purpose, say the authors of a paper in Science.
Using algorithms to quickly adjust prices in a dynamic market is not a new idea—airlines have been using them for decades—but previously these algorithms operated based on rules that were hard-coded into them by programmers.
Today the pricing algorithms that underpin many marketplaces, especially online ones, rely on machine learning instead. After being set an overarching goal like maximizing profit, they develop their own strategies based on experience of the market, often with little human oversight. The most advanced also use forms of AI whose workings are opaque even if humans wanted to peer inside.
In addition, the public nature of online markets means that competitors’ prices are available in real time. It’s well-documented that major retailers like Amazon and Walmart are engaged in a never-ending bot war, using automated software to constantly snoop on their rivals’ pricing and inventory.
This combination of factors sets the stage perfectly for AI-powered pricing algorithms to adopt collusive pricing strategies, say the authors. If given free reign to develop their own strategies, multiple pricing algorithms with real-time access to each other’s prices could quickly learn that cooperating with each other is the best way to maximize profits.
The authors note that researchers have already found evidence that pricing algorithms will spontaneously develop collusive strategies in computer-simulated markets, and a recent study found evidence that suggests pricing algorithms may be colluding in Germany’s retail gasoline market. And that’s a problem, because today’s anti-trust laws are ill-suited to prosecuting this kind of behavior.
Collusion among humans typically involves companies communicating with each other to agree on a strategy that pushes prices above the true market value. They then develop rules to determine how they maintain this markup in a dynamic market that also incorporates the threat of retaliatory pricing to spark a price war if another cartel member tries to undercut the agreed pricing strategy.
Because of the complexity of working out whether specific pricing strategies or prices are the result of collusion, prosecutions have instead relied on communication between companies to establish guilt. That’s a problem because algorithms don’t need to communicate to collude, and as a result there are few legal mechanisms to prosecute this kind of collusion.
That means legal scholars, computer scientists, economists, and policymakers must come together to find new ways to uncover, prohibit, and prosecute the collusive rules that underpin this behavior, say the authors. Key to this will be auditing and testing pricing algorithms, looking for things like retaliatory pricing, price matching, and aggressive responses to price drops but not price rises.
Once collusive pricing rules are uncovered, computer scientists need to come up with ways to constrain algorithms from adopting them without sacrificing their clear efficiency benefits. It could also be helpful to make preventing this kind of collusive behavior the responsibility of the companies deploying them, with stiff penalties for those who don’t keep their algorithms in check.
One problem, though, is that algorithms may evolve strategies that humans would never think of, which could make spotting this behavior tricky. Imbuing courts with the technical knowledge and capacity to investigate this kind of evidence will also prove difficult, but getting to grips with these problems is an even more pressing challenge than it might seem at first.
While anti-competitive pricing algorithms could wreak havoc, there are plenty of other arenas where collusive AI could have even more insidious effects, from military applications to healthcare and insurance. Developing the capacity to predict and prevent AI scheming against us will likely be crucial going forward.
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#437550 McDonald’s Is Making a Plant-Based ...
Fast-food chains have been doing what they can in recent years to health-ify their menus. For better or worse, burgers, fries, fried chicken, roast beef sandwiches, and the like will never go out of style—this is America, after all—but consumers are increasingly gravitating towards healthier options.
One of those options is plant-based foods, and not just salads and veggie burgers, but “meat” made from plants. Burger King was one of the first big fast-food chains to jump on the plant-based meat bandwagon, introducing its Impossible Whopper in restaurants across the country last year after a successful pilot program. Dunkin’ (formerly Dunkin’ Donuts) uses plant-based patties in its Beyond Sausage breakfast sandwiches.
But there’s one big player in the fast food market that’s been oddly missing from the plant-based trend—until now. McDonald’s announced last week that it will debut a sandwich called the McPlant in key US markets next year. Unlike Dunkin’ and Burger King, who both worked with Impossible Foods to make their plant-based products, McDonald’s worked with Los Angeles-based Beyond Meat, which makes chicken, beef, and pork-like products from plants.
According to Bloomberg, though, McDonald’s decided to forego a partnership with Beyond Meat in favor of creating its own plant-based products. Imitation chicken nuggets and plant-based breakfast sandwiches are in its plans as well.
McDonald’s has bounced back impressively from its March low (when the coronavirus lockdowns first happened in the US). Last month the company’s stock reached a 52-week high of $231 per share (as compared to its low in March of $124 per share).
To keep those numbers high and make it as easy as possible for customers to get their hands on plant-based burgers and all the traditional menu items too, the fast food chain is investing in tech and integrating more digital offerings into its restaurants.
McDonald’s has acquired a couple artificial intelligence companies in the last year and a half; Dynamic Yield is an Israeli company that uses AI to personalize customers’ experiences, and McDonald’s is using Dynamic Yield’s tech on its smart menu boards, for example by customizing the items displayed on the drive-thru menu based on the weather and the time of day, and recommending additional items based on what a customer asks for first (i.e. “You know what would go great with that coffee? Some pancakes!”).
The fast food giant also bought Apprente, a startup that uses AI in voice-based ordering platforms. McDonald’s is using the tech to help automate its drive-throughs.
In addition to these investments, the company plans to launch a digital hub called MyMcDonald’s that will include a loyalty program, start doing deliveries of its food through its mobile app, and test different ways of streamlining the food order and pickup process—with many of the new ideas geared towards pandemic times, like express pickup lanes for people who placed digital orders and restaurants with drive-throughs for delivery and pickup orders only.
Plant-based meat patties appear to be just one small piece of McDonald’s modernization plans. Those of us who were wondering what they were waiting for should have known—one of the most-recognized fast food chains in the world wasn’t about to let itself get phased out. It seems it will only be a matter of time until you can pull out your phone, make a few selections, and have a burger made from plants—with a side of fries made from more plants—show up at your door a little while later. Drive-throughs, shouting your order into a fuzzy speaker with a confused teen on the other end, and burgers made from beef? So 2019.
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