Privacy and Economics


Privacy and Economics is an often overlooked aspect of privacy.

For more than two decades the Internet and associated information technologies have driven unprecedented innovation, economic value, and improvement in social services. Many of these benefits are fueled by Personal data that flow through a complex ecosystem, Complexity that Natural Person may not be able to understand the potential consequences for their privacy as they interact with systems, products, and services. At the same time, organizations may not realize the full extent of these consequences for individuals, for society, or for their enterprises, which can affect their reputations, their bottom line, and their future prospects for growth.

The Internet the been largely based on providing "free" services to the End-User while the Service Providers were compensated by using the Personal data to sell Advertisements. In the current (2019) timeframe where the Internet has rendered individuals no longer mere Consumer of services, but public also producers of Content which is often highly personal data. The spread of mobile computing and sensor technologies has blurred the distinctions between digital and physical, online and offline. All of this has led to services that simultaneously generate and capture digital trails of personal and professional activities — activities that were previously conducted in private and left little or no trace.

Simultaneously, the Internet has evolved from an architecture of decentralized and possibly anonymous interactions, to one where packets of data capturing all types of behaviors (from reading to searching, from relaxing to communicating) are uniquely and sometimes personally identified. In this environment, a few "gatekeeper" firms are in a position to control the tracking and linking of those behaviors across platforms, online services, and sites — for billions of users. As a result, chronicles of people's actions, desires, interests, and mere intentions are collected by third parties, often without individuals' knowledge or Explicit consent, with a scope, breadth, and detail that are arguably without precedent in human history. Additionally the tremendous growth of the capabilities of Machine Learning Algorithms has allowed organizational Entities to analyze the collected data to perhaps predict the actions and desires of End-User to a high degree of accuracy.

However, the large majority of society, and Government want to place the blame on the organizational Entities leaving the End-Users (which are the people that elect them) blameless. With the increased Regulatory Burden and the obvious loss of a revenue stream built on the Advertising must be replaced with something and this is at least part of the Privacy Paradox. How can this be replaced?

The Economics of Privacy is an academic paper which concludes: Personal information has both private and commercial value, and often (though not always) exploiting its commercial value entails a reduction in private utility and sometimes even in social welfare overall. Consumers have good reasons to be concerned about unauthorized commercial application of their private information. Use of individual data may subject an individual to a variety of personally costly practices, including price discrimination in retail markets, quantity discrimination in insurance and credit markets, spam, and risk of identity theft, in addition to the disutility inherent in just not knowing who knows what or how they will use it in the future. Personal data — like all information after all — is easily stored, replicated, and transferred, and regulating its acquisition and dissemination is a challenging undertaking for individuals and governments alike.

Privacy and Economics and Sharing#

Privacy is not the opposite of sharing - rather, is control over sharing. For the individual, therefore, the potential benefits of strategically sharing certain data while protecting other Sensitive Data are quite apparent. So are the potential costs of having too much data disclosed to the wrong parties (from price discrimination to other more odious forms of discrimination; from social stigma to blackmailing; from intangible nuisances to identity theft).

Equally apparent, however, are the costs that others may incur when they find themselves in a position of information asymmetry relative to the subject. For example, the security firm that cannot conduct background checks on job applicants may end up hiring the wrong employees. As Posner (1981) points out, Privacy and Economics is redistributive — as is, of course, the lack of Privacy and Economics.

First, individuals can directly benefit from sharing their data. Advantages can be both psychological (Tamir and Mitchell, 2012) and economic: for instance, personalized services and discounts one receives after joining a merchant’s Loyalty Card program; or reduced search costs and increased accuracy of information retrieval one experiences when a search engine tracks them more closely. Those benefits turn into opportunity costs when the individual chooses not to reveal certain Personal data

More Information#

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