Haggai Porat (Harvard U) has posted “Bargaining with Algorithms: An Experiment on Algorithmic Price Discrimination and Consumer and Data Protection Laws” on SSRN. Here is the abstract:

Using algorithms to personalize prices is no longer a fringe phenomenon but, rather, the predominant business practice in many online markets. Seemingly unrelated, consumer protection laws have been grounded on the premise that consumers lack meaningful power to bargain over contract terms. This paper suggests that the increasing use of algorithms to set personalized prices based on consumers’ behavior opens a path for consumers to “bargain” with algorithms over prices and reclaim market power. Moreover, this interaction between consumers and sellers should inform the evolving regulation of pricing algorithms. Accordingly, this paper presents the results of a pre-registered, incentive-compatible randomized online experiment that tested whether and how consumers bargain with algorithms. In multiple rounds, participants were offered a $10 gift card at a price set by an algorithm based on participants’ purchase decisions in preceding rounds. The study explored the potential for regulating algorithmic pricing with standard tools from consumer and data protection laws: a disclosure mandate, the right to prevent data collection ex-ante (“cookies laws”), and the right to prevent data retention ex-post (“erasure laws” or the “right to be forgotten”). We found clear evidence that participants strategically avoided purchases they would have otherwise made to induce a price decrease in subsequent rounds, albeit not to the extent predicted by a rational choice model. We found that this strategic behavior increased in magnitude and statistical significance in the presence of disclosure. We further found clear evidence that participants who were granted data protection rights used them strategically: preventing retention or collection of their data in rounds in which they purchased the gift card so as to prevent a subsequent price increase and allowing it in rounds in which they declined to purchase so as to signal a low WTP and benefit from a price decrease in the next round.

Omri Ben-Shahar (U Chicago Law) has posted “Those Elusive Algorithmic Harms: A Comment on Bar-Gill and Sunstein, Algorithmic Harm” on SSRN. Here is the abstract:

Can we talk about harms of algorithms—of anything—without comparing them to the benefits? In Algorithmic Harm, Bar-Gill and Sunstein develop a theoretical framework to assess the impact of algorithms in consumer markets, focusing on harmful manipulation of unsophisticated buyers. But the same framework yields additional insights, not explored in the book—how algorithmic targeting and personalized prices benefit this same group of consumers. In this contribution to the book symposium, I examine this missing part, suggesting that algorithms’ ability to recognize different consumers often yields treatments favorable to weaker groups of consumers—an effect richly documented in the empirical economic literature. Absent a fuller account of both the offsetting benefits from algorithmic targeting, it is premature to recommend policy interventions that limit various uses of algorithms in markets populated by unsophisticated consumers.

Oren Bar-Gill (Harvard Law) and Cass R. Sunstein (Harvard Law) have posted “Algorithmic Harm: Protecting People in the Age of Artificial Intelligence” on SSRN. Here is the abstract:

Will algorithms help people or hurt them? What about artificial intelligence in general? If consumers know what they need to know and do not suffer from behavioral biases, algorithms and AI are likely to be helpful. Consumers will be more likely to get what they want and need. But if consumers lack information, algorithms in particular will be able to convince them to make harmful or foolish choices. And if consumers suffer from behavioral biases, such as unrealistic optimism or a focus on the short term, algorithms will be able to produce serious harms.

This is the Introductory chapter of Algorithmic Harm: Protecting People in the Age of Artificial Intelligence, in which Oren Bar-Gill and Cass Sunstein consider the harms and benefits of AI and algorithms and catalog the different ways in which algorithms are being or may be used in consumer and other markets. The authors identify the market conditions under which these uses injure consumers and consider policy and regulatory responses that could reduce the risks consumers, investors, workers, and voters face now—and in the future. Democracy and self-government are at risk; there is a great deal that can be done to reduce that risk.

Nizan Geslevich Packin (U Haifa Law; CUNY School of Business; CUNY Law) has posted “Paywalling Humans” (Theoretical Inquiries in Law, Forthcoming) on SSRN. Here is the abstract:

This Article addresses the trend of relegating human customer service to a premium-service in the wake of advancing automation and AI technologies, underscoring the ethical, social, and legal challenges. It emphasizes the need for keeping human interaction accessible and affordable for all, particularly for vulnerable populations, amidst this digital shift. The convenience and efficiency of automated systems such as IVR, chatbots, and virtual-agents have transformed customer support, introducing significant cultural and moral challenges, notably the erosion of personal touch and empathy vital for customer satisfaction and loyalty.

The Article explores customer service automation’s evolution and its impact on workforce dynamics, consumers, and the quality of service. It highlights the hidden costs of diminished human interaction, particularly its adverse effects on disadvantaged, elderly, and disabled groups. Through case studies and examples, it showcases this trend’s negative consequences. Further, it discusses the Human-In-The-Loop concept, advocating for an approach that enhances customer experience with automation without sacrificing human interaction. It explores the considerations surrounding automated customer service, emphasizing the enforcement roles of agencies like the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) in upholding consumer protection laws, and the need for regulations to ensure fairness, transparency, accessibility, and consent.

Concluding, the Article calls for technology to augment rather than replace human service, stressing the importance of clear regulations on the affordability of human interaction in customer support. It urges policymakers and businesses to ensure that automation does not marginalize those that need human assistance, advocating for equitable access to services.

Cass R. Sunstein (Harvard Law) has posted “AI, Reducing Internalities and Externalities” on SSRN. Here is the abstract:

Many consumers suffer from inadequate information and behavioral biases, which can produce internalities, understood as costs that people impose on their future selves. In these circumstances, “Choice Engines,” powered by Artificial Intelligence (AI), might produce significant savings in terms of money, health, safety, or time. Consider, for example, choices among motor vehicles or appliances. AI-powered Choice Engines might also take account of externalities, and they might nudge or require consumers to do so as well. Different consumers care about different things, of course, which is a reason to insist on a high degree of freedom of choice, even in the presence of internalities and (to some extent) externalities. But it is important to emphasize that AI might be enlisted by insufficiently informed or self-interested actors, who might exploit inadequate information or behavioral biases, and thus reduce consumer welfare. AI might increase internalities or externalities. It is also important to emphasize that AI might show behavioral biases, perhaps the same ones that human beings are known to show, perhaps others that have not been named yet, or perhaps new ones, not shown by human beings, that cannot be anticipated.

Rory Van Loo (Boston U Law; Yale ISP) has posted “The Public Stakes of Consumer Law: The Environment, the Economy, Health, Disinformation, and Beyond” (107 Minnesota Law Review 2039 (2023)) on SSRN. Here is the abstract:

Consumer law has a conflicted and narrow identity. It is most immediately a form of business law, governing market transactions between people and companies. Accordingly, the microeconomic analysis of markets is the dominant influence on consumer law. On the other hand, consumer law is often described as, and assumed to be about, protecting the consumer, which implicates small instances of individual injustice. Both of these lenses are valuable but reflect limited awareness of the field’s importance among lawmakers, scholars, and the public. We are all consumers. Exchanges between consumers and corporations contribute to global warming when people buy energy-inefficient household appliances; drive public health epidemics, like obesity, due to harmful food purchases; and widen wealth gaps, when low-income or minority households are subjected to predatory sales practices. Yet despite these stakes, consumer law has struggled to gain intellectual or popular appeal, in contrast to the explosion in antitrust interest that has resulted from the growing interest in holding large technology companies accountable. Unlike workers, veterans, and businesses, consumers have neither a department at the federal level nor a committee focused on them in either the House or the Senate. Many law schools do not even offer a consumer law course. This Article reveals the risks of consumer law’s invisibility and calls for an institutional and conceptual reconstruction of the field. Consumer law always mattered, but recent shifts in legal institutions, markets, and technologies have further elevated its importance. To reflect that societal importance, and to return the economic analysis to its roots, a public priority principle should serve as consumer law’s analytic loadstone. Legal institutions can also help by shifting from marginalizing the field to featuring it. At a minimum, it is time to recognize that consumer law has a meaningful role to play in the struggles to strengthen democracy, preserve the environment, foster health, and promote prosperity.