Artificial Intelligence, or AI, is taking over the world.
Yes, it’s the "rise of the machines" we’ve been telling you about in this column for the past year or so.
From Elon Musk reading your mind to a complete change in the way we work to the singularity in your shoes, we’ve been giving you the heads-up on the promises, threats and future of this game-changing technologic trend.
Today, I read the latest in the AI global takeover … and it could wind up right in your car’s gas tank.
That’s part of a report from the Wall Street Journal article titled: "Why Do Gas Station Prices Constantly Change? Blame the Algorithm."
The piece detailed the AI algorithm being used at two gas stations in the Netherlands. They are just two of the thousands of companies using AI-powered software to determine customer prices.
As the WSJ puts it:
In doing so, they are testing a fundamental precept of the market economy.
Whoa! I need to know more.
The WSJ goes on to put the situation in context. It reminds readers that, in classic economic theory, open competition between companies selling a similar product (in this case, gasoline) usually tends to push prices lower.
That makes sense. But by using real-time AI algorithms to determine the optimal price of gas, that price can be lowered or raised literally "dozens of times a day."
As they [AI] get better at predicting what competitors are charging and what consumers are willing to pay, there are signs they sometimes end up boosting prices together.
Now, if this sound like a high-tech, AI-inspired version of price-fixing, well. I sort of agree. But that’s definitely not the whole of it.
Per the WSJ:
Advances in A.I. are allowing retail and wholesale firms to move beyond "dynamic pricing" software, which has for years helped set prices for fast-moving goods, like airline tickets or flat-screen televisions. Older pricing software often used simple rules, such as always keeping prices lower than a competitor.
These new systems crunch mountains of historical and real-time data to predict how customers and competitors will react to any price change under different scenarios, giving them an almost superhuman insight into market dynamics.
"Superhuman" is the hallmark of AI, which can be used for good or ill. It all depends on the user, and their perspective and goals.
Related story: One Easy Way to Spend Less at the Gas Pump
If fuel-sellers program the AI to meet the goal of boosting sales (as all companies would likely do), then the algorithms will do just that.
So, does this mean that consumers will end up getting the shaft by this AI pricing algorithm?
According to Ulrik Blichfeldt, CEO of Denmark-based a2i Systems A/S (the company behind the Rotterdam gas stations software), his product is focused on "modeling consumer behavior and leads to benefits for consumers as well as gas stations."
The software learns when raising prices drives away customers and when it doesn’t, leading to lower prices at times when price-sensitive customers are likely to drive by, he said.
"This is not a matter of stealing more money from your customer. It’s about making margin on people who don’t care, and giving away margin to people who do care," he said.
That explanation makes sense, especially to a capitalist like me.
After all, if you price your product too low, then you are giving up margin. If you price it too high, you’re giving up sales. Neither is the optimal situation.
So, if you can price your product "just right," you can please customers and your bottom line at the same time.
That’s what I call an AI "win-win."
Hey, maybe this AI stuff isn’t all that scary after all!
What do you think about this latest AI example in our lives? Is it good, or are you worried? If you’d like to comment, or if you have a question about today’s Afternoon Edition topic, or any of the topics we cover, just leave a comment on our website or send us an e-mail.
Good luck and happy investing,
Uncommon Wisdom Daily