Computer Science > Artificial Intelligence
[Submitted on 7 Sep 2022 (v1), last revised 29 Mar 2024 (this version, v3)]
Title:Regulating eXplainable Artificial Intelligence (XAI) May Harm Consumers
View PDFAbstract:Recent AI algorithms are black box models whose decisions are difficult to interpret. eXplainable AI (XAI) is a class of methods that seek to address lack of AI interpretability and trust by explaining to customers their AI decisions. The common wisdom is that regulating AI by mandating fully transparent XAI leads to greater social welfare. Our paper challenges this notion through a game theoretic model of a policy-maker who maximizes social welfare, firms in a duopoly competition that maximize profits, and heterogenous consumers. The results show that XAI regulation may be redundant. In fact, mandating fully transparent XAI may make firms and consumers worse off. This reveals a tradeoff between maximizing welfare and receiving explainable AI outputs. We extend the existing literature on method and substantive fronts, and we introduce and study the notion of XAI fairness, which may be impossible to guarantee even under mandatory XAI. Finally, the regulatory and managerial implications of our results for policy-makers and businesses are discussed, respectively.
Submission history
From: Behnam Mohammadi [view email][v1] Wed, 7 Sep 2022 23:36:11 UTC (5,034 KB)
[v2] Mon, 12 Sep 2022 17:51:07 UTC (740 KB)
[v3] Fri, 29 Mar 2024 20:22:00 UTC (6,898 KB)
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