What Can Behavioral Economics Teach Us about Privacy?

Journal of Economic Literature, 2016

This article summarizes and draws connections among diverse streams of theoretical and empirical research on the economics of privacy. We focus on the economic value and consequences of protecting and disclosing personal information, and on consumers' understanding and decisions regarding the trade-offs associated with the privacy and the sharing of personal data. We highlight how the economic analysis of privacy evolved over time, as advancements in information technology raised increasingly nuanced and complex issues. We find and highlight three themes that connect diverse insights from the literature. First, characterizing a single unifying economic theory of privacy is hard, because privacy issues of economic relevance arise in widely diverse contexts. Second, there are theoretical and empirical situations where the protection of privacy can both enhance and detract from individual and societal welfare. Third, in digital economies, consumers' ability to make informed decisions about their privacy is severely hindered because consumers are often in a position of imperfect or asymmetric information regarding when their data is collected, for what purposes, and with what consequences. We conclude the article by highlighting some of the ongoing issues in the privacy debate of interest to economists.

The Economics of Privacy, 2024

By several accounts, the economics of privacy has grown into a remarkably successful field of research. As the means of collecting and using individuals’ data have expanded, so has the body of work investigating trade-offs associated with those data flows. The number of scholars working in the area has grown, much like the breadth of topics investigated. References to the economic value of personal data have become common in policy and regulation, and so have mentions of economic dimensions of privacy problems. Thinly veiled underneath those successes, however, lies a less encouraging trend. In this manuscript, I argue that the very success of the economics of privacy has laid the foundation for a potentially adverse effect on the public debate around privacy. Economic arguments have become central to the debate around privacy. When used as complements to considerations less amenable to economic quantification, those arguments are valuable tools: they capture a portion of the multiform implications of evolving privacy boundaries. When, instead, economic arguments crowd out those other noneconomic considerations from the public discourse around privacy, problematic scenarios arise. In one scenario, the economic analysis of privacy will keep growing in influence, but its overly narrow conception of privacy will impoverish rather than augment the depth of the debate around privacy. In a second scenario, less likely but equally problematic, the economics of privacy will progressively undermine its own relevance by failing to account for the complexity and nuance of modern privacy problems. There is a third scenario—one this manuscript explores. The economics of privacy may expand its horizons and relevance both by considering economic dimensions and research questions that have so far received limited attention, and by accounting for the broader scholarship on privacy coming from other disciplines. As a complement to the contributions of other fields, rather than a substitute for them, the economics of privacy may keep thriving and remain a useful tool for debate and policymaking.

Kyklos, 2014

Kennedy School of Government, …, 2005

The importance of personal privacy to Internet users has been extensively researched using a variety of survey techniques. The limitations of survey research are well-known and exist in part because there are no positive or negative consequences to responses provided by survey participants. Experimental economics is widely accepted by economists and others as an investigative technique that can provide measures of economic choice-making that are substantially more accurate than those provided by surveys. This paper describes our preliminary efforts at applying the techniques of experimental economics to provide a foundation for estimating the values that consumers place on privacy and various forms of security, such as encryption and HIPAA. In the activities described, experiment participants are graduate and undergraduate students currently seeking jobs. Preliminary results from two pilot experiments suggest that a complete set of experimental measures of choice-making will provide valuable quantification of behavior in Internet privacy/security space. These results also show that online job seekers place great value on security measures, both legislative and technical, that make identity theft much less likely.

The importance of personal privacy to Internet users has been extensively researched using a variety of survey techniques. The limitations of survey research are well-known and exist in part because there are no positive or negative consequences to responses provided by survey participants. Experimental economics is widely accepted by economists and others as an investigative technique that can provide measures of economic choice-making that are substantially more accurate than those provided by surveys. This paper describes our preliminary efforts at applying the techniques of experimental economics to provide a foundation for estimating the values that consumers place on privacy and various forms of security, such as encryption and HIPAA. In the activities described, experiment participants are graduate and undergraduate students currently seeking jobs. Preliminary results from two pilot experiments suggest that a complete set of experimental measures of choice-making will provide...

2009

This paper shows that privacy concerns in commercial contexts are not solely driven by a desire to control the transmission of personal information or to avoid intrusive direct marketing campaigns. When they express privacy concerns, consumers anticipate indirect economic consequences of data use, such as price discrimination. Our general hypothesis is that consumers are capable of expressing differentiated levels of concerns in the presence of changes that suggest indirect consequences of information transmission. We suggest that there is a homo economicus behind privacy concerns, not simply a primal fear. This hypothesis is tested in a large-scale experiment evoking the context of affinitybased direct marketing of insurances, which relies on data transmitted by alumni associations. Because opt-in and opt-out choices offered by firms to consumers usually capture non-situational preferences about data transmission, their ability to enact privacy concerns is questioned by our findings.

This paper aims to analyze theories developed both in favor and against privacy protection according to current practices in the West. In the paper, I will examine economic justifications for privacy protection as defined by American economists and jurists, as well as the advantages to be derived by a possible elimination of said protection. Moving beyond existing economic theories, this piece develops a new economic idea, wherein privacy protection is warranted when an individual becomes interested in another's habits for a specific reason: to root out different behaviors in that person by observing a behavior that is correlated with those behaviors. Imagine the scenario of a worker who is also a soccer player, who is not competitive on the job, and is a team player, when he plays soccer, with his co-workers. The two facts, one of loving his own soccer team, and second, of not being competitive in the workplace are expressions of the same human attitude, or of a certain aspect of his personality. The employer is interested in finding out if this worker plays soccer in order to identify a lack of competitiveness on the job, and perhaps to assign him more menial tasks. The employer wishes to know the worker's interest in soccer in order to deduce therefrom a second circumstance: non-competitiveness in the workplace. Thus if regulating others' conduct is not forbidden, the worker, in order not to be found out, will no longer play soccer; he will suffer a loss in terms of his personal welfare, while the employer, on the other hand, will gain nothing, having discovered nothing. From this comes a different justification for privacy protection. In the paper, however, we note that privacy protection is a tool for encouraging equality or, in pejorative terms, egalitarianism. Behind the privacy “screen,” indeed, everyone appears in shades of gray. Privacy protection makes individuals indistinguishable. In terms of inter-personal relationships, this means a “veil” of ignorance, with all its attendant costs. Therefore, it is possible that the economic justifications defined by those in favor of privacy protection should be put aside in favor of transparency among individuals.

Information Systems Frontiers, 2007

The importance of personal privacy to Internet users has been extensively researched using a variety of survey techniques. The limitations of survey research are well-known and exist in part because there are no positive or negative consequences to responses provided by survey participants. Such limitations are the motivation for this work. Experimental economics is widely accepted by economists and others as an investigative technique that can provide measures of economic choice-making that are substantially more accurate than those provided by surveys. This paper describes our efforts at applying the techniques of experimental economics to provide a foundation for (a) estimating the values that consumers place on privacy and various forms of security (encryption, HIPAA, etc.) and for (b) quantifying user responses to changes in the Internet environment. The contribution of this study is a better understanding of individual decision-making in the context of benefits and costs of making private information available to Internet sites. Preliminary results from a series of pilot studies are consistent with optimizing behaviors, indicating that continued application of experimental economics techniques in the quantification of Internet user actions in privacy/security space will be illuminating. Our results show that Internet users place great value on security measures, both regulatory and technical, that make identity theft much less likely. Our Web-based experiments indicate that privacy-and security-enhancing protections are likely to be subject to moral hazard responses, as participants in our online experiments became more aggressive in their Internet usage with greater protection in place.

IEEE Security and Privacy Magazine, 2005

In several experimental auctions, participants put a dollar value on private information before revealing it to a group. An analysis of results show that a trait's desirability in relation to the group played a key role in the amount people demanded to publicize private information. Because people can easily obtain, aggregate, and disperse personal data electronically, privacy is a central

Journal of the Academy of Marketing Science, 2002

The World Wide Web has significantly reduced the costs of obtaining information about individuals, resulting in a widespread perception by consumers that their privacy is being eroded. The conventional wisdom among the technological cognoscenti seems to be that privacy will continue to erode, until it essentially disappears. The authors use a simple economic model to explore this conventional wisdom, under the assumption that there is no government intervention and privacy is left to free-market forces. They find support for the assertion that, under those conditions, the amount of privacy will decline over time and that privacy will be increasingly expensive to maintain. The authors conclude that a market for privacy will emerge, enabling customers to purchase a certain degree of privacy, no matter how easy it becomes for companies to obtain information, but the overall amount of privacy and privacy-based customer utility will continue to erode. The advance of civilization is nothing but an exercise in the limiting of privacy.-Isaac Asimov Civilization is the progress toward a society of privacy.-Ayn Rand Science fiction writer Isaac Asimov and political novelist Ayn Rand take opposite sides with respect to the eventual outcome with respect to privacy. It is clearly the case,