Intelligent Agents or How to Stop Consumers Getting Screwed
Seemingly inadvertently yesterday, David Cameron made a commitment to legislation that would force utilities to ensure their customers were always on the cheapest tariff for their energy supplies.
The proposal has been met with some derision and now seems to be unravelling, but it’s problematic principally because it does not go nearly far enough.
In this, as in many markets, the odds are stacked against the consumer. Tariffs have proliferated, becoming increasingly difficult to compare, making informed decisions almost impossible. Few people really understand what they’re buying.
This is not simply a problem for the ill-educated. As I pointed out in a paper for the Long Finance initiative, MBA students prove incapable of determining which mortgage offers them a better deal, even when dealing with fewer parameters than are offered to British borrowers.
A massive information asymmetry is at work. Companies understand their customers’ cognitive biases. They crunch the likely impact of millions of buying decisions. And they frame choices in ways that turn what should be plain-vanilla commodities into much more profitable branded products.
There is only one answer to this: redesign markets from the consumers’ point of view. There are two main tasks.
First: enable the creation of technologies that level the playing field for consumers.
If you venture into a complex market without representation, you are asking to be fleeced. Traditional agents (people), however, are expensive, and their role as honest brokers has often been eroded when they are paid by the seller, not the buyer.
Technology can solve this problem. It is now a very simple task to design an intelligent agent that scours the market on behalf of a consumer, inviting bids and accepting them, based on criteria that its master has specified.
Here’s how it might work in the utility market.