Skip to main content Accessibility help
×
Hostname: page-component-7c8c6479df-24hb2 Total loading time: 0 Render date: 2024-03-29T21:32:45.161Z Has data issue: false hasContentIssue false

3 - The Economics and Behavioral Economics of Privacy

Published online by Cambridge University Press:  05 July 2014

Alessandro Acquisti
Affiliation:
Carnegie Mellon University
Julia Lane
Affiliation:
American Institutes for Research, Washington DC
Victoria Stodden
Affiliation:
Columbia University, New York
Stefan Bender
Affiliation:
Institute for Employment Research of the German Federal Employment Agency
Helen Nissenbaum
Affiliation:
New York University
Get access

Summary

Introduction

Imagine a world in which consumers’ preferences can be so precisely estimated by observing their online behavior that firms are able to anticipate consumers’ needs, offering the right product at exactly the right time. Imagine the same world, but now consider that extensive knowledge of consumers’ preferences also allows precise inferences about their reservation prices (the maximum price each consumer is willing to pay for a good), so that firms can charge different prices for the same product to each of their buyers and absorb the entire surplus arising from an economic transaction.

Imagine a world in which the collection and analysis of individual health data allow researchers to discover the causes of rare diseases and the cures for common ones. Now, consider the same world, but imagine that employers are able to predict job candidates’ future health conditions from a few data points extracted from the candidates’ social network profiles – and then, imagine those employers making hiring decisions based on those predictions, without any candidate’s consent or even awareness.

The economics of privacy attempts to study the costs and benefits associated with personal information – for the data subject, the data holder, and society as a whole. As a field of research, it has been active for some decades. Advances in data mining, business analytics, and so-called big data have the potential to magnify the size and augment the scope of economic benefits and dangers alike. This chapter surveys the growing body of theoretical and empirical research on the economics and behavioral economics of privacy, and discusses how these streams of research can be applied to the investigation of the implications of consumer data mining and business analytics. Among the many possible interpretations of privacy, this investigation focuses on its informational aspects: the trade-offs arising from the protection or disclosure of personal data.

Type
Chapter
Information
Privacy, Big Data, and the Public Good
Frameworks for Engagement
, pp. 76 - 95
Publisher: Cambridge University Press
Print publication year: 2014

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acquisti, A. 2004. Privacy in electronic commerce and the economics of immediate gratification. In Proc. ACM Conference on Electronic Commerce (EC ’04), 21–29.CrossRefGoogle Scholar
Acquisti, A. 2009. Nudging privacy: The behavioral economics of personal information. IEEE Security & Privacy 7(6): 82–85.CrossRefGoogle Scholar
Acquisti, A. 2010. The economics of personal data and the economics of privacy. Background paper for OECD Joint WPISP-WPIE Roundtable, December 1.
Acquisti, A., Adjerid, I., and Brandimarte, L.. 2013a. Gone in 15 seconds: The limits of privacy transparency and control. IEEE Security & Privacy 11(4): 72–74.CrossRefGoogle Scholar
Acquisti, A., and Fong, C.. 2012. An experiment in hiring discrimination via online social networks. In 5th Privacy Law Scholars Conference (PLSC), June 7–8.
Acquisti, A., and Gross, R.. 2006. Imagined communities: Awareness, information sharing, and privacy on the Facebook. In Workshop on Privacy Enhancing Technologies (PET ’06), 36–58.Google Scholar
Acquisti, A., and Grossklags, J.. 2005. Privacy and rationality in individual decision making. IEEE Security & Privacy 3(1): 24–30.CrossRefGoogle Scholar
Acquisti, A., and Grossklags, J.. 2007. What can behavioral economics teach us about privacy? In Digital Privacy: Theory, Technologies and Practices, ed. Acquisti, Alessandro and di Vimercati, Sabrina De Capitani, 363–377. Boca Raton, FL: Auerbach Publications.Google Scholar
Acquisti, A., John, L. K., and Loewenstein, G.. 2013b. What is privacy worth?Journal of Legal Studies 42(2): 249–274.CrossRefGoogle Scholar
Acquisti, A., and Varian, H. R.. 2005. Conditioning prices on purchase history. Marketing Science 24(3): 367–381.CrossRefGoogle Scholar
Adjerid, I., Acquisti, A., Brandimarte, L., and Loewenstein, G.. 2013a. Sleights of privacy: Framing, disclosures, and the limits of transparency. In Symposium on Usable Privacy and Security (SOUPS), 9.CrossRefGoogle Scholar
Adjerid, I., Acquisti, A., Padman, R., Telang, R., and Adler-Milstein, J.. 2013b. The impact of privacy regulation and informed consent on technology adoption: The case of health information exchanges. Economics of Information Technology and Digitization Workshop, NBER Summer Institute, 2013, .
Akerlof, G. A. 1970. The market for ‘lemons’: Quality uncertainty and the market mechanism. Quarterly Journal of Economics 84(3): 488–500.CrossRefGoogle Scholar
Beales, H. 2010. The value of behavioral targeting. Network Advertising Initiative.
Bennett, J., and Lanning, S.. 2007. The Netflix prize. In Proc. KDD Cup and Workshop.
Blattberg, R.C., and Deighton, J.. 1991. Interactive marketing: Exploiting the age of addressability. Sloan Management Review 33(1): 5–14.Google Scholar
Brandimarte, L., and Acquisti, A.. 2012. The economics of privacy. In Handbook of the Digital Economy, ed. Peitz, M. and Waldfogel, J.. New York: Oxford University Press.Google Scholar
Brandimarte, L., Acquisti, A., and Loewenstein, G.. 2013. Misplaced confidences privacy and the control paradox. Social Psychological and Personality Science 4(3): 340–347.CrossRefGoogle Scholar
Brunk, B. D. 2002. Understanding the privacy space. First Monday 7(10), .CrossRefGoogle Scholar
Calo, R. 2011. The boundaries of privacy harm. Indiana Law Journal 86:1131–1162.Google Scholar
Camenisch, J., and Lysyanskaya, A.. 2001. An efficient system for non-transferable anonymous credentials with optional anonymity revocation. In Advances in Cryptology – EUROCRYPT ’01, LNCS 2045, 93–118. Heidelberg: Springer.Google Scholar
Camp, L. J. 2007. Economics of Identity Theft: Avoidance, Causes and Possible Cures. New York: Springer.Google Scholar
Canny, J.F. 2002. Collaborative filtering with privacy. In IEEE Symposium on Security and Privacy, 45–57.Google Scholar
Cate, F. H. 2002. Principles for protecting privacy. Cato Journal 22(1): 33–57.Google Scholar
Cate, F. H., Litan, R. E., Staten, M., and Wallison, P. (2003). Financial privacy, consumer prosperity, and the public good: Maintaining the balance. Federal Trade Commission Workshop on Information Flows: The costs and benefits to consumers and businesses of the collection and use of consumer information.
Chaum, D. 1983. Blind signatures for untraceable payments. In Advances in Cryptology, 199–203. New York: Plenum Press.CrossRefGoogle Scholar
Chaum, D. 1985. Security without identification: Transaction systems to make big brother obsolete. Communications of the ACM 28(10): 1030–1044.CrossRefGoogle Scholar
Culnan, M. J., and Armstrong, P. K.. 1999. Information privacy concerns, procedural fairness, and impersonal trust: An empirical investigation. Organization Science 10(1): 104–115.CrossRefGoogle Scholar
Cvrcek, D., Kumpost, M., Matyas, V., and Danezis, G.. 2006. A study on the value of location privacy. In ACM Workshop on Privacy in the Electronic Society (WPES), 109–118.CrossRefGoogle Scholar
Dinev, T., and Hart, P.. 2006. An extended privacy calculus model for e-commerce transactions. Information Systems Research 17(1): 61–80.CrossRefGoogle Scholar
Dingledine, R., Mathewson, N., and Syverson, P.. 2004. Tor: The second-generation onion router. In Proc. 13th Conference on USENIX Security Symposium, 13:21.Google Scholar
Duncan, G. T., Keller-McNulty, S. A., and Stokes, S. L.. 2001. Disclosure risk vs. data utility: The R-U confidentiality map. Technical Report No. 121. Research Triangle Park, NC: NISS.
Farrell, J. 2012. Can privacy be just another good?Journal on Telecommunications and High Technology Law 10:251–445.Google Scholar
Fudenberg, D., and Tirole, J.. 2000. Customer poaching and brand switching. RAND Journal of Economics 31(4): 634–657.CrossRefGoogle Scholar
Gellman, R. 2002. Privacy, consumers, and costs – how the lack of privacy costs consumers and why business studies of privacy costs are biased and incomplete. March.
Gentry, C. 2009. Fully homomorphic encryption using ideal lattices. In Proc. 41st Annual ACM Symposium on Theory of Computing, 169–178.CrossRefGoogle Scholar
Goldfarb, A., and Tucker, C.. 2010. Privacy regulation and online advertising. Available at SSRN: .
Hann, I.-H., Hui, K.-L., Lee, T. S., and Png, I. P.. 2007. Overcoming online information privacy concerns: An information processing theory approach. Journal of Management Information Systems 42(2): 13–42.CrossRefGoogle Scholar
Hirshleifer, J. 1971. The private and social value of information and the reward to inventive activity. American Economic Review 61(4): 561–574.Google Scholar
Hirshleifer, J. 1980. Privacy: Its origins, function and future. Journal of Legal Studies 9, no. 4 (December): 649–664.CrossRefGoogle Scholar
Huberman, B. A., Adar, E., and Fine, L. R.. 2005. Valuating privacy. IEEE Security & Privacy 3:22–25.CrossRefGoogle Scholar
John, L. K., Acquisti, A., and Loewenstein, G.. 2011. Strangers on a plane: Context-dependent willingness to divulge sensitive information. Journal of Consumer Research 37(5): 858–873.CrossRefGoogle Scholar
Knight, F. 1921. Risk, Uncertainty and Profit. Boston: Hart, Schaffner & Marx; Houghton Mifflin.Google Scholar
Laufer, R. S., and Wolfe, M.. 1977. Privacy as a concept and a social issue: A multidimensional developmental theory. Journal of Social Issues 33(3): 22–42.CrossRefGoogle Scholar
Lenard, T. M., and Rubin, P. H.. 2009. In defense of data: Information and the costs of privacy. Washington, DC: Technology Policy Institute, May.
Loewenstein, G., and Haisley, E.. 2008. The economist as therapist: Methodological issues raised by light paternalism. In Perspectives on the Future of Economics: Positive and Normative Foundations, ed. Caplin, A. and Schotter, A.. New York: Oxford University Press.Google Scholar
Milberg, S. J., Burke, S. J., Smith, H. J., and Kallman, E. A.. 1995. Values, personal information privacy, and regulatory approaches. Communications of the ACM 38(12): 65–74.CrossRefGoogle Scholar
Noam, E. M. 1996. Privacy and self-regulation: Markets for electronic privacy. In Chapter 1 of Privacy and Self-Regulation in the Information Age. Washington, DC: National Telecommunications and Information Administration.Google Scholar
Png, I. 2007. On the value of privacy from telemarketing: Evidence from the ‘Do Not Call’ registry. Working paper, National University of Singapore.
Posner, R. A. 1981. The economics of privacy. American Economic Review 71, no. 2 (May): 405–409.Google Scholar
Rabin, M., and O’Donoghue, T.. 2000. The economics of immediate gratification. Journal of Behavioral Decision Making 13(2): 233–250.Google Scholar
Romanosky, S., and Acquisti, A.. 2009. Privacy costs and personal data protection: Economic and legal perspectives. Berkeley Technology Law Journal 24(3): 1060–1100.Google Scholar
Rubin, P. H., and Lenard, T. M.. 2001. Privacy and the Commercial Use of Personal Information. Boston: Kluwer Academic Publishers.Google Scholar
Solove, D. J. 2006. A taxonomy of privacy. University of Pennsylvania Law Review 154(3): 477.CrossRefGoogle Scholar
Spiekermann, S., Grossklags, J., and Berendt, B.. 2001. E-privacy in 2nd generation e-commerce: Privacy preferences versus actual behavior. In Proc. 3rd ACM Conference on Electronic Commerce, 38–47.CrossRefGoogle Scholar
Stigler, G. J. 1980. An introduction to privacy in economics and politics. Journal of Legal Studies 9, no. 4 (December): 623–44.CrossRefGoogle Scholar
Swire, P. P., and Litan, R. E.. 1998. None of Your Business – World Data Flows, Electronic Commerce, and the European Privacy Directive. Washington, DC: Brookings Institution Press.Google Scholar
Taylor, C. R. 2004a. Consumer privacy and the market for customer information. RAND Journal of Economics 35(4): 631–651.CrossRefGoogle Scholar
Taylor, C. R. 2004b. Privacy and information acquisition in competitive markets. Technical Report 03-10. Durham, NC: Duke University, Economics Department.
Tedeschi, B. 2002. E-commerce report; everybody talks about online privacy, but few do anything about it. The New York Times, June 3.
Tsai, J. Y., Egelman, S., Cranor, L., and Acquisti, A.. 2011. The effect of online privacy information on purchasing behavior: An experimental study. Information Systems Research 22(2): 254–268.CrossRefGoogle Scholar
Varian, H. 1985. Price discrimination and social welfare. American Economic Review 75(4): 870–875.Google Scholar
Varian, H. R. 1996. Economic aspects of personal privacy. In Chapter1 in Privacy and Self-Regulation in the Information Age. Washington, DC: National Telecommunications and Information Administration.Google Scholar
Varian, H., Wallenberg, F., and Woroch, G.. 2005. The demographics of the do-not-call list. IEEE Security & Privacy 3(1): 34–39.CrossRefGoogle Scholar
Wathieu, L., and Friedman, A.. 2005. An empirical approach to understanding privacy valuation. In 4th Workshop on the Economics of Information Security.
Whitten, A., and Tygar, J. D.. 1999. Why Johnny can’t encrypt: A usability evaluation of PGP 5.0. In Proc. 8th USENIX Security Symposium, 14.Google Scholar
Wilson, K., and Brownstein, J.. 2009. Early detection of disease outbreaks using the Internet. Canadian Medical Association Journal 180(8): 829.CrossRefGoogle ScholarPubMed

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×