My ECONS102 class has been covered the economics of information this week, including asymmetric information and signalling. So, it is timely to revisit the topic of online dating (which I have discussed earlier this year, here and here), particularly given the rise of artificial intelligence. As the Financial Times reported last month (paywalled):
Terrible news from the world of online dating. As if a parade of dubious romantic prospects and dead-end chats wasn’t bad enough, artificial intelligence has dipped its toe into the dating pool.
Eleven years ago, Tinder helped to turn dating into a series of quick-fire interactions on the internet. But for some jaded users, even writing “Hi” to a romantic prospect is now too much effort. Tech start-ups such as Rizz and YourMove AI are gaining a foothold in the sector by offering AI assistance in creating witty opening lines and appealing profiles.
Meeting strangers on the internet is by nature a random affair. Artificial chat is at least a less sinister way to help that process along than asking users to swab the insides of their mouth, as DNA-dating app Pheramor once did. But a proliferation of AI-assisted conversations suggests that eventually dating apps will simply be full of computers trying to woo other computers.
One start-up even offers the chance to watch this exact premise unfold. Teaser AI asks users questions about themselves and their personalities and then crafts AI-generated chat that is designed to mimic them. When individuals match, they can sit back and watch as their chatbots try to chat each other up.
I'm sure I wasn't the first to point out that we would eventually find ourselves in a world where one instance of ChatGPT was chatting up another instance of ChatGPT, with no humans involved. On top of being a somewhat amusing situation, there is a downside in this development. It will simply make it more difficult for someone genuinely looking for love to find a match online.
To see why, we need to discuss adverse selection. Adverse selection arises when one of the parties to an agreement (the informed party) has private information that is relevant to the agreement, and they use that private information to their own advantage at the expense of the uninformed party. In the case of online dating, the private information is the quality of each potential date. They know if they are high quality or not, but no one else knows. That could lead to a pooling equilibrium, where every online dating subscriber assumes that everyone they are matched with is low quality (because they can't tell the high quality and low quality dates apart, and assuming that every match is high quality is a recipe for disaster). High quality dates don't want to be treated as if they are low quality, so they drop out of the online dating market. Eventually, the online dating market only has low quality dates. The 'market' for high quality dates fails.
Of course, the market typically hasn't failed. People find love in online dating, so clearly the online dating apps are doing something to reduce the adverse selection problem. One thing that they do is offer the ability for subscribers to chat with the people they are matched with. Chatting allows the subscriber to work out (albeit imperfectly) who is high quality and who is low quality. When applied by the uninformed party, this is referred to as screening.
It also allows the high-quality dates to signal that they are high quality. To be effective, a signal must meet two criteria. First, the signal must be costly (otherwise everyone, even those who are lower quality dates, would provide the signal). And second, it must be costly in a way that makes it unattractive for the lower quality dates to attempt (such as being more costly for them to engage in). Engaging in witty and flirty conversation (or whatever type of conversation a subscriber is looking for, if not witty and flirty) on a dating app is costly - it takes time and effort. It will also be less costly for high-quality dates, for whom the desired type of conversation may come more naturally. It is much easier to be yourself in conversation than it is to pretend to be someone you are not. So, conversation on dating apps is an effective signal, albeit an imperfect one.
The problem with AI is that it eliminates the signalling value of conversation on the app. An uninformed subscriber should no longer find the conversation on the app to be a credible signal of the quality of the match they are engaging with. They can't use the conversation for screening either. After matching, the best option is likely to be, as I suggested earlier, in-person meet-ups.
The shareholders of online dating services should be freaking out right now. Their business model, which is built on providing high-quality matches, is under threat by AI. Once the novelty of watching their AI wingman chatting up their match's AI wingman wears off, subscribers will realise that paying for the dating app has become a waste of time. In fact, here's the share price performance over the last six months of the three biggest dating app companies, Match Group (MTCH) in blue, Bumble (BMBL) in black, and Grindr (GRND) in green (original data taken from here):
While Match is up 10.4 percent over that time, Grinder is down 19.5 percent, and Bumble is down 25.3 percent. It's not looking good.
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