Pay With Your Data: Optimal Data-Sharing Mechanisms for AI Services

48 Pages Posted: 28 Aug 2023 Last revised: 25 Nov 2024

See all articles by Sameer Mehta

Sameer Mehta

Rotterdam School of Management, Erasmus University

Chandrasekhar Manchiraju

Eli Broad College of Business, Michigan State University

Milind Dawande

University of Texas at Dallas - Department of Information Systems & Operations Management

Ganesh Janakiraman

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: August 26, 2023

Abstract

Problem definition: In this paper, we examine how firms offering AI services can effectively acquire large volumes of training data from their consumers to improve the accuracy of the machine learning (ML) models that drive these services. Since consumers often incur privacy costs when sharing sensitive information, it is essential to design data-sharing mechanisms that balance data acquisition needs with consumers' privacy.

Methodology/results: Inspired by practice, we examine two fundamentally distinct data-sharing mechanisms: manual data-sharing, where consumers control the amount of data they share, and algorithmic data-sharing, where the firm’s algorithm redacts sensitive segments of data before using it to train the ML model. We obtain revenue-maximizing mechanisms for each approach and compare their impact on firm revenue, consumer surplus, and the volume of data collected. Our analysis highlights the conditions under which each mechanism yields superior outcomes in terms of revenue and consumer surplus.

Managerial implications: Based on the comparative performance of the two mechanisms, we provide managerial guidelines that help firms choose the preferred data-sharing mechanism for different types of AI services and consumer characteristics.

Keywords: data-sharing mechanisms, artificial intelligence services, mechanism design

JEL Classification: D47, D40

Suggested Citation

Mehta, Sameer and Manchiraju, Chandrasekhar and Dawande, Milind and Janakiraman, Ganesh, Pay With Your Data: Optimal Data-Sharing Mechanisms for AI Services (August 26, 2023). Available at SSRN: https://ssrn.com/abstract=4552550 or http://dx.doi.org/10.2139/ssrn.4552550

Sameer Mehta (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

RSM Erasmus University
PO Box 1738
Rotterdam, 3062 PA
Netherlands

Chandrasekhar Manchiraju

Eli Broad College of Business, Michigan State University ( email )

632 Bogue St
East Lansing, MI 48824
United States

Milind Dawande

University of Texas at Dallas - Department of Information Systems & Operations Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Ganesh Janakiraman

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
446
Abstract Views
1,408
Rank
140,664
PlumX Metrics