In a thought-provoking editorial, Andrew Schwartz, Assistant Professor of Finance at Elon University, articulately explains why New Jersey lawmakers ought to embrace Artificial Intelligence (AI) rather than shun it.
Photo via xira.ai.
Politicians from Trenton to Washington, D.C. are defying court rulings — and, more importantly, the voices of New Jersey’s residents — by attempting to impose restrictions on the types of artificial intelligence technologies that businesses and consumers in the Garden State can utilize.
A recent ruling by a federal judge, appointed by President Biden, resulted in the dismissal of a lawsuit targeting major hotels in Atlantic City.
The plaintiffs contended that the AI-driven algorithmic software utilized by the hotels should be banned, claiming it facilitates illegal price hikes that surpass what would be charged without such technology.
This argument is fundamentally flawed. The AI software is designed to guide hotels in raising prices during times of high demand and, conversely, lowering them when demand decreases.
The primary objective of this software is not to engage in price-gouging but rather to enable New Jersey’s fast-evolving economy to adapt in real-time to market fluctuations.
Regrettably, New Jersey’s politicians, apprehensive about this innovative tool, are resorting to their typical knee-jerk reactions by contemplating a new wave of regulations in what is already one of the most heavily regulated states in America.
In direct contradiction to the federal court’s decision, New Jersey lawmakers are seeking to prohibit the use of similar technologies by landlords in the residential rental market.
“I hope we can all agree that collusion by any means is not only wrong, but illegal,” emphasized Assemblywoman Yvonne Lopez, D-Middlesex, a key supporter of the proposed legislation, as reported in New Jersey Monitor.
“We need to do everything we can to ensure fairness in our rental housing market, and I believe banning these schemes is critical to that goal,” she added, highlighting her commitment to equity in housing.
While there is little debate about the steep rise in housing and rental prices across New Jersey, attributing this surge to AI technology is misguided. The more relevant culprits are inflationary pressures and a myriad of regulations.
AI technology merely provides data-driven recommendations. Regardless of the presence of AI, the principles of supply and demand ultimately dictate pricing. When demand for apartments escalates, prices inevitably increase; conversely, a decrease in demand leads to lower prices.
The new programs may assist landlords in identifying emerging trends, but they do not alter the foundational principles of supply and demand.
Research substantiates this perspective, as evidenced by a study showing that during the tumultuous period of the 2008 to 2010 Great Recession, landlords who employed algorithmic solutions managed to lower rents and enhance occupancy rates compared to those who did not adopt such technologies within the same market segment.
Landlords and rental companies are far from the only entities leveraging pricing software in New Jersey. Algorithmic pricing has been a staple for airlines, hotels, and even state transportation systems, enabling them to analyze real-time data encompassing market demand, competitor pricing, and supply availability.
Algorithmic AI equips Garden State firms and governmental bodies to dynamically adjust their pricing strategies, ensuring swift adaptation to ever-changing market conditions.
If New Jersey’s leadership believes that algorithmic technology can assist in determining toll road pricing on state highways, it raises an important question: why the double standard regarding its impact on consumers?
This is the 21st century. There is no justification for businesses to rely solely on guesswork and intuition to maintain competitiveness. Why shouldn’t they harness technology to scrutinize data and stay ahead of the competition, similar to how state government operates?
Ultimately, landlords and rental entities retain the autonomy to make their own pricing decisions.
AI emerges as a powerful new tool in this process, but it does not shift the foundational considerations that landlords face when determining rent — specifically, the balance between price and tenant availability.
Undeniably, housing costs in New Jersey are steep, and many tenants face the daunting challenge of affording rent amidst financial strains. However, outlawing algorithmic pricing methodologies will not automatically rectify the situation.
If New Jersey lawmakers genuinely aim to alleviate housing costs, they should turn their attention to the plethora of existing regulations. Perhaps revising some of these guidelines instead of adding more could yield a more affordable housing landscape in the Garden State.
**Interview with Andrew Schwartz, Assistant Professor of Finance at Elon University**
**Interviewer:** Thank you for joining us today, Andrew. Your recent editorial argues that New Jersey lawmakers should be embracing Artificial Intelligence instead of imposing restrictions. Can you elaborate on your main points?
**Andrew Schwartz:** Absolutely, thank you for having me. The crux of my argument is that AI technology, like the algorithmic software used by hotels, is actually designed to respond dynamically to market conditions. When demand surges, prices may go up slightly, but that’s a reflection of basic supply and demand—not price gouging. What’s essential here is realizing that AI should enhance our economy’s responsiveness, not be treated as a scapegoat for more complex issues.
**Interviewer:** You mentioned that a federal judge recently ruled in favor of hotels using such AI technology, dismissing claims that it leads to unfair price hikes. How do you view the implications of this ruling?
**Andrew Schwartz:** The judge’s ruling is a reaffirmation of the need for a nuanced approach to technology. It highlights that the AI systems in question are indeed helping businesses adapt to fluctuating demand rather than artificially inflating prices. This legal decision should serve as a wake-up call for lawmakers to reconsider their stance instead of knee-jerking toward regulation, which could stifle innovation.
**Interviewer:** Politicians like Assemblywoman Yvonne Lopez argue that banning certain AI technologies in rental markets is key to ensuring fairness. What’s your take on this?
**Andrew Schwartz:** While I appreciate the concern for fairness, I believe attributing the rising costs of housing solely to AI is myopic. Factors like inflation and broader economic trends play much larger roles. Banning AI won’t change the fundamentals of the rental market—supply and demand remain paramount. Algorithmic pricing can actually help landlords manage prices more effectively, as evidenced by studies showing it can lead to lower rents during economic downturns.
**Interviewer:** Given the current climate in New Jersey, do you think there’s a way for lawmakers to encourage the responsible use of AI while addressing concerns about fairness?
**Andrew Schwartz:** Absolutely. Instead of bans and regulations, lawmakers could engage with stakeholders, including tech developers and housing advocates, to create guidelines that promote transparency and ethical use of AI. This approach could help harness the benefits of AI technology while addressing the community’s concerns about equity in the housing market.
**Interviewer:** Thank you, Andrew. Your insights shed light on the complexities surrounding AI regulation and its impact on New Jersey’s economy.
**Andrew Schwartz:** Thank you for having me! It’s crucial that we have these conversations as technology continues to evolve and shape our lives.
