The Secret of Airbnb's Pricing Algorithm

How much should you charge someone to live in your house? Or how much would you pay to live in someone else's house? Would you pay more or less for a planned vacation or for a spur-of-the-moment getaway? And the struggle to do so, my colleagues and I discovered, was preventing potential rentals from getting listed on our site--Airbnb, the company that matches available rooms, apartments, and houses with people who want to book them. In focus groups, we watched people go through the process of listing their properties on our site--and get stumped when they came to the price field. Many would take a look at what their neighbors were charging and pick a comparable price; this involved opening a lot of tabs in their browsers and figuring out which listings were similar to theirs.