"Just because you’re paranoid, doesn’t mean the algorithms aren’t out to get you"

From the blog of Tim Harford, the Financial Times' Undercover Economist:

If you do not like the price you’re being offered when you shop, do not take it personally: many of the prices we see online are being set by algorithms that respond to demand and may also try to guess your personal willingness to pay. What’s next? A logical next step is that computers will start conspiring against us. That may sound paranoid, but a new study by four economists at the University of Bologna shows how this can happen.

The researchers allowed two simple artificial intelligence algorithms to compete against each other in a setting where they simultaneously set prices and reaped profits accordingly. The algorithms taught themselves to collude, raising prices from the cut-throat competitive level towards what a monopolist would choose. Price cuts were met with price wars, after which collusion would return. Just because you’re paranoid, it doesn’t mean the computers are not out to get you.

This is not a surprising result for anyone who — like me — squandered their youth studying the theory of industrial competition. Robert Axelrod’s book The Evolution of Cooperation (US) (UK) published in 1984, described a tournament in which computers played a “prisoner’s dilemma”, a scenario analogous to two competing sellers. The best approaches used the threat of punishment to sustain co-operation. They were also simple: not something that a machine-learning system would struggle to discover....

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