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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

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Working Paper

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Do high-tech startups benefit from developing more ethical AI? AI startups implement policies and take actions to manage ethical issues associated with data collection, storage, and usage and adapt to the norms of their industry. This paper describes these startups' ethics-related actions, including ethical AI policy adoption, and examines how these actions relate to startup performance. We find that merely adopting an ethical AI policy (i.e., a less costly signal) does not relate to increased performance. However, there is evidence that investors reward startups that take more costly preventative pro-ethics actions, like seeking expert guidance, training employees about unconscious bias, and hiring certain types of programmers. We use signaling theory to interpret these results, which suggest that ethical AI policies are a low-cost signal of quality to investors.

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