Nov. 19, 2024 at 11:00 am ET

Artificial intelligence has the potential hold down prices in complex and expensive services such as higher education. Photo: Getty Images/iStockphoto

Kartik Hosanagar (@khosanagar) is a professor of technology and digital business at the Wharton School of the University of Pennsylvania and faculty co-lead of AI for Business. He also is the author of “A Human’s Guide to Machine Intelligence: How Algorithms Are Shaping Our Lives and How We Can Stay in Control.”

Much of the discourse around artificial intelligence involves its potential to displace millions of jobs. But AI offers a surprising upside, too: It could make life cheaper, especially for many of the professionals who most fear it.

To be sure, I’m not talking about the prices of everyday necessities like eggs, bread or gas. In fact, AI might actually exacerbate price increases in those areas because of the increased energy demands associated with AI chips. Rather, it is more complex and more expensive services such as higher education, software and professional services where AI has the potential to hold down prices.

The reason stems from AI’s ability to automate and augment tasks at a low cost. Historically, automation has driven down prices. During the 19th century, for instance, the introduction of automated machinery such as power looms and spinning machines made mass-produced fabrics more affordable for the general public. AI will have a similar impact. AI doesn’t just replace workers, it also can act as their co-pilot, taking on some of their tasks to clear their plate for others or adding to their capabilities. Whether AI replaces workers or boosts their productivity, the result will be higher margins for producers, lower prices for consumers, or both.

WSJ

My experience as a professor illustrates this relationship clearly. From 2004 to 2023, private university education costs in the U.S. rose by 40% when adjusted for inflation, with public university costs increasing even more steeply. Administrative costs were the primary driver of these increases, as universities spent more on customized student services such as career counseling, extracurricular opportunities and wellness checks, all of which require additional personnel.

AI can address these rising costs by enhancing the efficiency of student services. An AI system, for example, could analyze a student’s academic records and suggest personalized career paths, allowing career counselors to focus on providing tailored advice rather than data collection or routine counseling. Colleges might need fewer counselors as a result, helping bring down costs and helping control tuition increases. Similarly, AI could improve the productivity of educators by supporting tasks such as lesson-planning, setting homework and exams, and grading, allowing them to spend more time teaching.

There also is good reason to believe AI will drive down costs in other industries, such as enterprise software, where AI is enabling new players to challenge established companies by drastically reducing development costs. Similarly, there could be many applications for AI in healthcare—from drug discovery and precision medicine to AI-powered scribes that will allow physicians to spend more time with patients than in front of computers.

It’s important to note that traditional economic indicators, such as gross domestic product, may fail to fully capture the value of a technology like AI. If AI transforms a previously paid-for service such as medical transcription into a free one, GDP’s focus on monetary transactions will miss the economic value created. As such, we likely will need new ways to fully measure the economic and societal value of AI. One approach is to measure changes in customer welfare as a measure of AI’s impact instead of focusing exclusively on monetary spending.

Write to Kartik Hosanagar at reports@wsj.com.