Computers, Privacy & the Constitution

Behavioral Economics and Privacy Rights

-- By MeharJagota - 11 Apr 2012


A theme of our class has been the apparent cognitive bias which prevents people from demanding adequate levels of privacy on the Net. (The “why are the students in this class still on Facebook?” problem). In class we’ve discussed, and Moglen has dismissed, the ability of rational apathy to explain these actions. For individuals and for society, privacy enhancements involve immediate costs which will pay future dividends (or prevent future losses). Behavioral economics theory provides tools which attempt to model irrational decision making involving trade-offs.

Framing the Problem

A basic problem with privacy is that the outcomes from decisions made about privacy are not purely deterministic and it's very difficult to arrive at precise estimates of the likelihood of adverse events (risks), many of which are not foreseeable (uncertainties). A bulk of the uncertainties in the privacy context stem from the fact that some of the gravest harms posed by the dissemination of personal data are a result of aggregation (like the “social graph”) and inferred information, both of which are seemingly exogenous to an individual’s decision calculus. The situation becomes even more complex when a privacy decision is in fact a series of iterative decisions. A related problem is the idea that we suffer from bounded rationality - even if we had full information we are limited in our ability to process it.

Prospect Theory

Prospect theory (Kahneman and Tversky 1979) offers some insight which may help describe irrational decision making in this area. It is a theory which modifies traditional utilitarian analysis by adding an S-shaped value curve which models the way in which people losses and gains from an arbitrary reference point. This introduces the idea of anchoring, in which people create an artificial starting point from which to gauge benefits and losses. In the case of privacy decisions, for many people this reference point is likely where there is an “absence of privacy” on the net. Thus, any improvements in privacy result in gains. According to prospect theory, people appreciate the weight of losses more than they do gains of a similar magnitude.This suggests that fear tactics are a potential avenue to motivate user driven privacy enhancement. People also overvalue the effects of smaller outcomes and undervalue larger outcomes. This is perhaps manifest in the privacy context by a failure to internalize the most dire consequences of an elimination of privacy, such as deprivation of liberty by one’s government.

Another corollary of prospect theory is a documented endowment effect, in which people have different reservation prices for homogeneous goods depending on whether it is “theirs” or not. In some sense, an individual is always endowed with personal data and so data valuations should trend upwards. However, people are no longer endowed with privacy rights. A study conducted by Acquisti gave half of the participants a 12 dollar gift card on which purchases made would be tracked, while the other half received a 10 dollar gift card on which purchases would remain anonymous. All participants were offered the choice of switching. The study found that more people who had received the 10 dollar card were willing to keep it, suggesting that you value privacy less when you receive less of it.

Privacy decisions are also affected by the fact that rights to privacy are bundled goods. (For example, you can’t use Facebook but withhold access to your personal data). Some people may prefer to reveal certain information about themselves some of the time (if you want to receive targeted advertisements for products that you like etc.), but are unable to do so without comprehensively compromising their right to privacy. Not only are privacy rights difficult to define in scope, there is no way to limit revelation of to a specific time window, as the information can be stored indefinitely and duplicated infinitely. This leads to harmful uses of the data by secondary actors which were not considered by the decision maker.


We know that Facebook and similar services have achieved a critical mass which render them difficult to displace. Given the cumulative effect of the financial harms of centralized social network and the risks people assume from the presence of a middle man, a rational person should immediately delete their Facebook account. But they won't. We also know that Moglen and others are working on solutions which will provide these services with negligible privacy infringements. The choice of deleting Facebook and joining a different social network will need to be presented in such a way that results in gains for the individual and society despite the irrationality discussed above. For some group of people, like those who hold minority beliefs while living under authoritarian regimes, the potential harms are so great that they will make the switch irrespective of whether or not they suffer from the cognitive bias above. The important group of people then are those who live in first world countries for whom social networking is a resource for leisure and networking. To get these people to switch will be difficult, as they are endowed with services like Facebook and the privacy risks that come with them. First, they will need to be made to understand that rights to privacy can be unbundled and exist separately from the provision of social networking and other services. Freedombox might be most successful with the few people left who never have joined or are unaccustomed to using Facebook, as well as younger people who might be less fraught with the endowment effect. It will be up to these sorts of people to create the culture of privacy necessary to bring these harms to light and into the decision calculus for everyone else. These people will "anchor" themselves such that they are accustomed to rigorous privacy on the internet, and fight fervently for it in the future.

Turns out that what behavioral economics added to our analysis was jargon. No actual idea was added to the repertoire from which we began. If there is a value to the formalization, it doesn't lie in helping us to decide what to do. Making it possible to have social networking without a man in the middle collecting everything seems like a good idea, as it did to me back in 2010 when I suggested it, and nothing about the difficulty of making decisions about aggregated small future risks changes that.

In the end, your draft adds up to "people allow their privacy to be invaded because there aren't cheap, convenient ways to do what they want without giving up privacy." Understanding why the market won't provide such alternatives is economics, more or less, but not yours. Understanding why government won't provide such alternatives is now pretty trivial, but to the extent it requires explaining I explained it in class. Seeing why anarchism will attempt to provide those alternatives is easier when you have one of its leaders available to talk to. Knowing whether the attempt will succeed is beyond all our powers. Twerp and Conman, or whatever they're called, can neither make it more likely nor show how it should be done. Your satisfaction with their efforts is a feeling that escapes me.

I’ll admit this was not a very useful or well developed inquiry and look forward to improving in a new draft, but in response to your comments for now:Perhaps insight from prospect theory does not change the fact social networking without a man in the middle is a good idea, but it may help us predict the way in which we can implement or “market” this new social network so that it can displace Facebook. The idea is not only, as you put it, “people allow their privacy to be invaded because there aren’t cheap, convenient ways to do what they want without giving up privacy,” it’s also “people allow their privacy to be invaded and they obviously shouldn’t even if there are not cheap, convenient alternatives. So when there are alternatives, how do we know people won’t continue to allow their privacy to be invaded?” Understanding why people act the way they do might help us present solutions like Freedombox framed in a way that will lead people away from continuing to make harmful decisions. The theory resonates with what you’ve said in class, that the shift to services like Freedombox will come first from a country in which people face much greater probabilities of severe harm (and therefore are able to internalize these harms), but the mechanism by which the first world will adopt these solutions still remains unclear to me. People will need to choose to adopt the alternatives that anarchism provides, and it’s not clear rationality will prevail. There might be something in a more nuanced and smarter application of behavioral economics than mine which gives us insight into how we can help people best frame this choice.

-- MeharJagota - 01 May 2012

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r7 - 11 Jan 2013 - 21:48:52 - IanSullivan
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