White Airbnb hosts earn more. Can AI close the racial gap?

by Lane Lambert

Whites who host rental properties on Airbnb earn significantly more per year than black hosts, but a “blind” pricing algorithm could help close that income gap, according to a new study.

According to a study co-authored by Shunyuan Zhang, assistant professor in the Marketing Unit at Harvard Business School.

Zhang’s findings come at a critical time for the travel industry. People keen to get rid of their COVID-19 cabin fever are preparing to take a vacation, increasing Airbnb bookings by 52% in the last quarter from the previous year. Harnessing artificial intelligence to reduce racial economic disparities could help more homeowners take advantage of pent-up accommodation demand.

The research findings could also have broader implications for promoting racial equity in a wide range of businesses, from financial investment programs and medical services to e-commerce platforms like eBay and Uber. “If other companies invest in creating similar algorithms regardless of race, it might even become a playground for users,” Zhang said.

Without AI, white hosts earn more

Airbnb has been criticized for the disparities in income earned by white and black hosts. For example, a 2017 study found that in 72 predominantly black neighborhoods in New York City, Airbnb hosts were five times more likely to be white. And the same study found that white Airbnb hosts in black neighborhoods earned around $ 160 million, compared to just $ 48 million earned by black hosts.

Indeed, Zhang’s research found that before the algorithm’s launch in 2015, white Airbnb hosts earned $ 12.16 more per day than black hosts, according to the study. reduce racial economic inequalities? An analysis in the context of Airbnb, which will be published in Marketing Sciences this summer or early fall.

According to Zhang and his co-authors, Nitin Mehta of the University of Toronto, and Param Vir Singh and Kannan Srinivasan of Carnegie Mellon, properties owned by black hosts had 20% less demand than similar properties owned by white people, which harmed occupancy rates and worsened the imbalance. University.

This difference in monthly occupancy “suggests that Airbnb customers may be systematically biased against renting to black hosts,” the researchers write.

Based on detailed neighborhood and city data from 660,000 US real estate listings, six years ago, Airbnb began offering a free tool to help all hosts set reasonable rates. The real-time ‘smart pricing’ program uses machine learning to automatically adjust the property’s overnight charges taking into account a rich set of factors that influence demand, such as location, amenities and costs. seasonal fluctuations.

Zhang and his coauthors were curious whether the algorithm could help reduce racial inequality by optimizing nightly rates for white and black hosts, so that everyone can benefit financially.

Closing the Airbnb Racial Income Gap

Zhang’s team analyzed a two-year period of rental price per night and daily income for 2,118 properties in seven US cities between 2015 and 2017. The researchers found that among all the hosts who used the algorithm , real-time price adjustments increased demand and income. Although hosts who used the tool saw prices per night drop 5.8%, higher occupancy rates helped increase average daily income by 8.6%.

Black hosts, who owned 9% of the properties the researchers analyzed, booked significantly more tenants when they used the algorithm, reducing the income gap between white and black hosts for properties by 71.3%. comparable.

By relying on intuition and other methods of setting rates, many hosts from all walks of life were overpricing their properties. The research team found that the algorithm’s price recommendations were unaffected by host run, so white and black hosts saw similar price corrections.

“One thing we can say: the algorithm is race blind,” says Zhang. Overall, black hosts who used the algorithm saw even more gains than white hosts who used it. “Black hosts benefit more,” says Zhang.

Adoption is a challenge

However, the research team found an issue that prevented greater racial equity gains: Black hosts were 41% less likely than white hosts to take advantage of the smart pricing app. And for black hosts who did not use it during the study period, the racial income gap persisted.

“It’s a well-intentioned algorithm,” says Zhang. “It offers flexibility. There is an opportunity for a (black) host to improve their income, but only if you use it.

It is not known why fewer black hosts are using the tool. Asian and Latino hosts also appear to use the algorithm at a lower rate than white hosts, although the gap for these groups is smaller.

The research was partly inspired by Zhang’s own experiences with Airbnb and a previous study in which she analyzed whether adding professional web touches, such as expert property photographs, produced more rentals. (They do.)

While black hosts seem more hesitant to embrace “smart pricing” in the latest study, Zhang says Airbnb’s best strategy is persuasion, rather than revising a clearly successful algorithm. “Encouraging hosts to adopt it might be more practical,” she says.

What else can Airbnb do?

Perhaps the biggest challenge is to reverse the racial biases of potential guests. Airbnb could consider preventing travelers from knowing the race of hosts, possibly by hiding their profile photos until transactions are complete, the researchers said.

It could backfire if guests make stereotypical inferences based on a host’s name or the decor of the house, the researchers warn, but they say it may still be an idea to test.

Airbnb underwent a similar corporate introspection in 2016 after a study by HBS Associate Professor Michael Luca found how often guests with uniquely black names were discriminated against (pdf). In response, the company conducted an internal study (pdf), modified aspects of its booking tool to avoid bias, and committed to becoming more inclusive.

Airbnb is certainly not alone. Many businesses inevitably face the complexity of resolving biases and racial equity issues associated with the use of algorithms, the researchers say.

“As AI and algorithms gain importance in businesses, at least as this study attests, they can potentially be valuable tools in reducing racial bias,” says Srinivasan. “However, great care is needed to carefully ensure that this is the case.”

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