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Bus routes/schedules influence riders' behavior (People reach a bus stop at the time when they expect their bus to arrive). If buses try to automatically adjust route and timing based on riders' needs, riders will start showing up whenever and wherever they want. That makes me feel that the buses may become less utilized, not more.

I do not think so, Many times bus routes are created without thinking about traffic. An app like that that dynamically updates based on where the "blob" of riders are would be awesome.

Bridj [1] is a Boston startup exploring this opportunity. Here's a recent article. [2]

[1] http://www.bridj.com/ [2] https://www.bostonherald.com/business/business_markets/2015/...

(I have no association with the company.)

I think there's a lot of potential for van-sized automated transit systems. Carrying 4 people gets you most of the fuel efficiency savings of a bus but without the big inefficiencies when you've only got one passenger on an unpopular route.