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The Market Price of Privacy

March 24, 2012

I recently got annoyed by this New York Times “Bitz” blog, written by Somini Sengupta, about paying for privacy. It correctly pointed out that we get services on the web that seem `free’ to us, but there is an actual price which we pay, namely we are targets of ads and are sometimes forced to hand over personal information. Moreover, when we use `free’ services such as sending invitations to a party, we are subjecting all of our friends to advertising as well. From the post:

It was a perfect microcosm of the bargain we make with the Web every day. Send me ads based on what you know about me (bachelorette party vs. child’s birthday party) or take my money to keep my screen free of ads. That bargain was the topic of a fascinating study that asked how much we are willing to pay to keep our personal data to ourselves.

The article then explained the recent study. Namely, it seems that Germans aren’t willing to pay an extra 50 Euro cents for movie tickets to avoid giving out their cells numbers, but they do claim to care about personal information gathering. If there was no price difference they wanted the less intrusive version. The author seemed to think this is a paradox.

What? That’s kind of like me saying, I like better quality chocolate, but I’m not willing to pay $400 per serving for better chocolate, and then you say I’m a hypocrite and must not like chocolate.

The fact is, it’s all about the price. It’s always all about the price. There is no way, absolutely no way, that a cell phone number, reluctantly given in a situation such as for buying movie tickets, is worth 50 Euro cents to the company collecting the number. Therefore there’s no way you should have to pay that much to avoid giving it.

Here’s another example the blog gave, when explaining sending out a dozen web-based invitations to a party:

Faced with the choice of paying an extra $10 to keep my invitation advertisement-free, I dithered. It would be easy and inexpensive, I thought, to follow Wikipedia’s lead on this (the online encyclopedia is stubbornly ad-free). But then I thought about that little risk that accompanies the ease of digital consumption: Would my credit card information be safe with this online greeting card company? The worrywart in me won out. I did not pay the extra $10. I chose to lob advertisements at my friends.

I’m in internet advertising, and I can tell you right now that a very generous estimate of how much each opportunity to advertise for your guests on an invitation, and presumably the original email and anything you’d click on in receiving the invitation, could be worth up to 10 cents, max. That is to say, the offer of keeping your invitations advertisement free for $10 is an approximately 10x markup, and you’d be a fool to pay that much for something worth so little on the open market.

So here’s what drives me crazy. It’s not that people aren’t willing to pay for privacy. They are. They’re just not willing to overpay by an outrageous amount for privacy. Far from seeming like a paradox, this seems like good intuition for a market price. If there is a web-based company that offers to send out advertisement-free invitations for a dime per guest, I think about my friends and I say, yeah they’re worth a dime each (but actually I just send them an email to come to my party).

Consumers don’t (yet) actually have access to the market price of privacy- that market is dominated for now by large-scale institutional collectors of information, which is why we’re seeing outrageous markups like these for individuals. It will be interesting to see how that changes.

Categories: data science
  1. March 24, 2012 at 1:27 pm

    These transactions are opaque and need to become much more transparent. Most probably don’t even realize a transaction is occurring when they hand over information. I have a very hard time putting a price on my privacy in some of these situations because it’s really not clear how my privacy might be invaded. Purchases tracked today will be used and sold many years into the future.

    I’d probably pay the 50 cents per ticket to avoid giving my cell number to the theater just to avoid potential solicitations. But I let my grocery store track my purchases to save a few hundred dollars per year on food. Hopefully, if I make a naughty purchase, I’ll be smart enough not to let them track it. But I might not be smart enough. Years from now, those wholesome ice cream purchases might make my health insurance more expensive or make me look unhealthy and unemployable.

    Is that history worth a couple hundred dollars per year? I don’t know. It’s an asset that can and will be sold, just like the theater’s cell phone numbers with movie viewing histories. So a market price for purchase histories probably exists but that information is not available to the consumer. Presumably, the market price is much greater than the cost of obtaining the histories.

    How can we make these transactions more transparent? People aren’t willing to spend much time on the decision to release the information so contract disclosure is unlikely to be effective. I suspect that regulation will be required. I’m not sure how a useful regulatory regime might operate. Serious regulatory attempts would likely suffer from the same problems as our financial services regulatory apparatus.


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