Down by Algorithms? Siphoning Rents, Exploiting Biases and Shaping Preferences – The Dark Side of Personalized Transactions


Abstract: In this article we seek to systematically explore and understand crucial aspects of a potential dark side of personalized transactions. Big data and artificial intelligence may enable businesses with access to the data and the required technology to effectively personalize their interactions with consumers in order to exploit informational asymmetries and/or consumer biases in novel ways and on an unprecedented scale. We identify three aspects of the dark side of personalized B2C transactions as particular areas of concern. First, businesses increasingly engage in first-degree price discrimination, siphoning rents from consumers. Second, firms exploit well-known behavioral biases of consumers such as, for example, their inability to correctly assess the long-term effects of complex transactions or their insufficient will-power, in a systematic fashion. And third, businesses use microtargeted ads and recommendations to shape consumers’ preferences and steer them into a particular consumption pattern, effectively locking them into a lifestyle determined by their past choices and those of likeminded fellows.

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