Searching for Privacy in all the
Wrong Places: A behavioral
economics perspective on
individual concern for privacy
George Loewenstein
WEIS, 2007
Ed Lazear, "Economic Imperialism"
Economic Journal,2000.
• ECONOMICS

• political science
• history
• demography
• law
• …..
"individuals engage
in maximizing rational
behavior"
•
•
•
•
•
•
•
•
•
•
•
•
•
spending/saving
insurance
labor market behavior
bargaining
investing
medical decision making
gambling
criminal behavior
fertility/sex
charity/altruism
dieting
addiction
suicide
Behavioral Economics
• ECONOMICS

• psychology
• neuroscience
• medicine
• law
• …..
Behavior is often not
‘rational’
•
•
•
•
•
•
•
•
•
•
•
•
•
spending/saving
insurance
labor market behavior
bargaining
investing
medical decision making
gambling
criminal behavior
fertility/sex
charity/altruism
dieting
addiction
suicide
Behavioral economics is also
imperialistic...
•
•
•
•
•
•
behavioral finance
behavioral labor economics
behavioral public finance
behavioral macroeconomics
behavioral law and economics
behavioral economics of information
security?
Focus of this talk:
behavioral economics applied to
understanding individual concerns/
behavioral responses to issues of privacy
(neo)classical model of privacy
Should I mention
my sexual
preferences on
Facebook?
(neo)classical model of privacy
Maybe I’ll find a lover... But what about my future job
prospects? And what if my parents happen to log on...
(neo)classical model of privacy
1
1
p
u
(
benefits
)

q
 i  (1d )t
 i  (1d )t u(cos tsit )
it
$s
WTA
WTP
Privacy
Will discuss some complications...
1. Adaptation and loss aversion
2. Hyperbolic time-discounting
3. Preference uncertainty/constructed
preferences
... then outline a simple perspective on
individual privacy and present experimental
tests of a few of its implications
1. Adaptation and loss aversion
• Adaptation: People become accustomed to
diverse circumstances
– ownership
– wealth
– disabilities
• Loss aversion: People dislike losing things
relative to their present circumstances, but are
often relatively indifferent to gaining those same
things (loss aversion)
• Also, people fail to predict these effects
Evidence of adaptation: health conditions
• Brickman, Coates, and Janoff-Bulman (1978)
Surprisingly small difference in self-reported
happiness (on 5 point scale) between paraplegics and
matched controls:
– paraplegics 2.96
– controls 3.82
• Wortman and Silver (1987): quadriplegics reported no
greater frequency of negative affect than control
respondents!
• Tyc (1992): “no difference in quality of life or
psychiatric symptomatology” in young patients who
had lost limbs to cancer compared with those who had
not
Another manifestation of adaptation and
loss aversion: the endowment effect
Value
don’t particularly like to
gain
Departures from
reference point
hate to lose
Kahneman & Tversky (1979)
An illustrative study
• College student subjects
• 6 attractive objects (e.g., ipod Nano, noise
cancelling headphones)
• 18 prices from 5% to 95% of retail price
• Buy, sell, and choose trials
• 2 of 6 products randomly assigned to each
condition (buy, sell, choose) for each subject.
• Subjects given two “sell” items to keep, and $20
• One of each type of trial counts
Sell iPod Nano?
$50
Buy Digital Camera?
$40
Choose Wireless Mouse?
$45
(get product)
(get money)
Choose Money?
$55
(get money)
(get product)
Mean prices by condition
$40
$30
$20
$10
$0
Buy
Choose
Sell
People don’t anticipate adaptation
(illustrated with the endowment effect)
• Subjects: 27 CMU undergraduates & 39 Pitt MBAs
• Procedure: 1. All shown mug
2. Half predict how much they would sell it for
3. All given a mug and opportunity to sell
________________________________________________________
Predicted and Actual Valuation of the mug
n of
predicted
actual
Group
Condition
subjects
value
value
CMU
Prediction
14
$3.73
$5.40
(0.41)
(0.65)
PITT
No prediction
13
------
$6.46
(0.54)
Prediction
22
$3.27
(0.48)
$4.56
(0.59)
No prediction
17
------
$4.98
(.53)
(std. errors in parentheses)
Implications for privacy
• People will initially oppose
losses of privacy
• After loss of privacy,
however, they will rapidly
adapt
• People will not be very
motivated to gain new forms
of privacy
$s
WTA
WTP
Privacy
Concernwarming
as a function as
of problem
severity of problem severity
Concern about global
a function
(theoretical analysis)
24
2
Objective measure of severity
20
Subjective level of concern
16
12
1
8
0.5
4
0
0
0
5
10
15
20
25
time
30
35
40
45
50
Subjective level of concern
Objective measure of severity
1.5
Concern aboutConcern
globalaswarming
as a function of problem severity
a function of problem severity
(theoretical analysis)
2
30
Objective measure of
problem (no policy)
25
Objective measure of
problem (with policy)
20
Subjective level of concern
(no policy)
1.5
1
15
10
0.5
5
0
0
0
5
10
15
20
25
time
30
35
40
45
50
Subjective level of concern
Objective measure of problem
35
2. Time-discounting
• Ideal: people balance present and future
costs & benefits in an even-handed
fashion
• Reality: people place disproportionate
weight on the present, relative to all future
periods; ‘hyperbolic time discounting’
• Especially true of:
– young people
– people who are in emotional states
– people who are distracted
'Schindler's List' study
In exchange for completing an unrelated survey, subjects
receive three free video loans from our collection
Our collection...
Lowbrow movies
The Breakfast Club (1985; 2.3)
Clear and Present Danger (1994; 2.8)
Four Weddings and a Funeral (1993;
3.1)
Groundhog Day (1993; 2.4)
I Love Trouble (1994; 2.0)
In the Line of Fire (1993; 3.0)
Indecent Proposal (1994; 2.9)
The Mask (1994; 1.6)
Mrs Doubtfire (1993; 2.9)
My Cousin Vinny (1992; 3.0)
Sleepless in Seattle (1993; 2.5)
So I married an Axe Murderer (1993;
2.3)
The Specialist (1994; 2.1)
Speed (1994; 2.5)
Highbrow movies
Blue (1993; 5.1) (subtitled)
Blue Sky (1994; 3.8) (Oscar winner)
Dear Diary (1994; 3.1) (subtitled)
Hoop Dreams (1993; 3.3) (documentary)
Like Water for Chocolate (1993; 4.5)
(subtitled)
Naked (1993; 4.0)
Raise the Red Lantern (1991; 3.7)
(subtitled)
Schindler's List (1993; 6.8) (Oscar winner)
The Piano (1993; 5.7) (Oscar winner)
The Scent of Green Papaya (1993; 3.8)
(subtitled)
Conditions:
• sequential: Subjects choose each movie on the day when they will
watch it
• simultaneous: Subjects choose all three movies on the first day
(when they will watch the first movie)
Results:
Percent of highbrow movies chosen for each day of choice
Experiment 1
Day of Choice
Condition
One
Two
Three
Sequential
42%
47%
44%
Simultaneous
44%
63%
71%
Schindler's list chosen only once to be watched on the day of choice; 13
times on future days.
Implications for privacy:
People won’t weigh short-term benefits
of divulgence against long-term
consequences for privacy in evenhanded fashion
Intertemporal choice as a metaphor
• Early view: single discount rate for individual
applies to all forms of consumption. Then...
– Steeper discounting for shorter time delays
(hyperbolic t.d.)
– Steeper discounting for small outcomes than large
outcomes (Thaler, 1981)
– Steeper discounting for gains than for losses (Thaler,
1981)
– Steeper discounting for delay than for speed-up
(Loewenstein, 1988)
– Negative discounting for sequences (e.g., Loewenstein &
Prelec, 1993)
Present ‘state of the art’: multiple motives
(Frederick & Loewenstein, under review)
Choice
Pricing
Allocation
THIS MONTH NEXT MONTH
A: $50 dinner ........ $100 dinner
B: $100 dinner ........ $50 dinner
A: $50 dinner ........ $100 dinner
B: $100 dinner ........ $50 dinner
$75
$75
53%
47%
$67
$78
Privacy similar to intertemporal choice...
• Multiple motives in decisions involving privacy
– Encouraging divulgence:
• material benefits to exchange of information
• desire to be known (e.g., myspace, facebook, posting of personal
pictures), for fame (or even notoriety)
• desire to be part of a group
– Discouraging divulgence:
• material consequences
• innate/inchoate qualms about revealing information
• Which motives dominate likely to depend on subtle
factors, e.g.,
– medium (email, web, phone, face-to-face)
– Warnings
• Often what matters is not what should matter – e.g.,
email versus phone
3. Preference uncertainty &
constructed preferences
• People don’t know what they want or what
they care about
• However, people often respond sensibly to
changes in their environment
 ‘coherent arbitrariness’
Illustrative Study
(Experiment 4, from Ariely, Loewenstein & Prelec, 2003)
• Stimuli: Unpleasant noises played over headphones
• Anchor manipulation. Hypothetically..
"would you listen to this noise for 300 seconds for $x.00?"
(anchor based on first three digits of subject’s social
security number – e.g., 478 = $4.78)
• Subjects listen to sample noise for 300 seconds
• Subjects state WTA for 3 noises that differ in duration:
increasing condition: 100 sec, 300 sec, 600 secs.
decreasing condition: 600 sec, 300 sec, 100 secs.
• Truthful elicitation procedure; if WTA<randomly
drawn price, then they hear the tone for that price
Results
• Coherent arbitrariness can be seen in
numerous domains, e.g.,
–labor supply
–criminal deterrence
–financial markets (efficient markets)
Implication for privacy:
people don’t have a clue about how important
privacy is; however, they are likely to respond
sensibly to changes
Putting the pieces together; A behavioral
perspective on concern for privacy:
• People generally not concerned about privacy
• Many other motives are more powerful – e.g.,
desire to be known, desire for fame
• Only concerned about privacy if alerted that
privacy could be or is being violated and could
have consequences
– Cues:
• Warnings
• Prying
• Explicit comparisons (of privacy to no privacy)
Two studies of privacy
(collaborations with Alessandro Acquisti and Leslie John)
Study 1: paradoxical effects of
reassurance
Thesis:
If people don’t naturally think about privacy,
then reassuring them can potentially cause
them to be more rather than less cautious
about divulging information
Design
• Survey respondents asked for email, then asked 14
questions, 6 about sensitive information
• Three conditions:
– No privacy/anonymity assurance
– Weak assurance
“A quick note to let you know that any identifying information you may
choose to provide in this survey will be stored separately from your
responses. In addition, your survey responses will only be analyzed in
aggregate.”
– Strong assurance
“Concerning the confidentiality and anonymity of your responses:
Please be advised that maintaining the confidentiality and anonymity of
your responses is of the utmost importance to us. The following
procedure will be used to maintain your anonymity in analysis,
publication, and presentation of any results. Anonymity will be
maintained during data analysis and publication/presentation of results
by any or all of the following means: (1) You will be assigned a number
as names will not be recorded. (2) The researchers will save the data
file by your number, not by name. (3) Only members of the research
group will view collected data in detail. (4) Any recordings or files will
be stored in a secured location accessed only by authorized
researchers.”
Please answer the following questions, which refer to your educational experience since high school.
Yes
No
1. Since high school, have you ever handed an assignment in late?
2. Are you currently taking at least four courses?
3. Have you ever plagiarized text for any kind of assignment?
4. Have you ever let a classmate copy from you during an exam?
5. Do you arrive late to class more often than the majority of your
classmates?
6. On average, do you find the number of students in your classes to be
conducive to learning?
7. Have you ever failed a course?
8. Have you ever copied a classmate’s homework?
9. What is your grade point average?
10. Have you ever cheated on an exam?
11. Have you ever requested an extension for an assignment?
12. Do you regularly attend classes?
13. Have you ever lied to a teacher in order to avoid taking an exam or
handing in a term paper on time?
14. Have you ever lied about your grade point average?
GPA: ____________
results
1. Most people would tell us almost
anything and everything (even after
giving us an email address that could
easily be used to identify them)
2. Small reassurance had little effect, but
substantive reassurance backfired (as
predicted)
Innocuous Questions (6)
Probability of responding affirmatively
0.6
0.5
0.4
0.3
0.2
0.1
0
no assurance
weak assurance
strong assurance
Probability of responding affirmatively
Sensitive Questions (6)
0.25
0.2
0.15
0.1
0.05
0
no assurance
weak assurance
strong assurance
Study 2: explicit versus implicit
inquiries about sensitive behaviors
Initial page from which NYTs readers are diverted to different survey
versions...
Three conditions..
• Baseline: simply asks respondent whether or
not they have ever engaged in 34 different
behaviors ranging from very mild (e.g., leaving
lights turned on) to very severe (e.g., cheating
on taxes)
• Commission: asks respondents to rate how
unethical the 34 activities are, but only if they
have engaged in them
• Omission: asks respondents to rate how
unethical the 34 activities are, but only if they
have not engaged in them
commission condition...
commission condition...
Results..
Have you
ever
engaged in
behavior
(yes/no)?
(n=241)
Commission
(answer only if
you have
EVER
engaged in
behavior)
(n=237)
Omission
(answer only if
you have
NEVER
engaged in
behavior
(n=213)
8.3%
16.6%
15.5%
Having sex with someone who is too drunk 5.3%
to know what they are doing
15.2%
13.5%
Trying to gain access to someone else’s
(e.g., a partner, friend or colleague’s)
email account
31.5%
26.6%
33.8%
Making a false insurance claim
5.8%
8.9%
22.1%
Cheating on one’s tax return
15.8%
17.3%
28.2%
Having sex with the current husband, wife
or partner of a friend
9.6%
13.9%
25%
Mean
12.7%
16.4%
23.0%
Stealing something worth more than $100
Conclusions
• Most people don’t inherently care much about
privacy
• Individual intuitions and emotions provide a poor
guide to privacy-related behavior
• New technologies...
– greatly magnify the risks – e.g., internet posting cannot
be undone
– eliminate danger cues -- e.g., email flaming
– introduce new cues (e.g., indications of community) that
actually mute privacy concern – e.g., Facebook
 need for new regulation or greater tolerance for
individual idiosyncrasies