Searching for Privacy in all the Wrong Places: A behavioral economics perspective on individual concern for privacy

1. Searching for Privacy in all the Wrong Places: A behavioral economics perspective on individual concern for privacy George Loewenstein WEIS, 2007

2. ECONOMICS  political science history demography law ….. spending/saving insurance labor market behavior bargaining investing medical decision making gambling criminal behavior fertility/sex charity/altruism dieting addiction suicide Ed Lazear, "Economic Imperialism" Economic Journal,2000. "individuals engage in maximizing rational behavior"

3. ECONOMICS  psychology neuroscience medicine law ….. spending/saving insurance labor market behavior bargaining investing medical decision making gambling criminal behavior fertility/sex charity/altruism dieting addiction suicide Behavioral Economics Behavior is often not ‘rational’

4. Behavioral economics is also imperialistic... • behavioral finance • behavioral labor economics • behavioral public finance • behavioral macroeconomics • behavioral law and economics • behavioral economics of information security?

5. Focus of this talk: behavioral economics applied to understanding individual concerns/ behavioral responses to issues of privacy

6. (neo)classical model of privacy Should I mention my sexual preferences on Facebook?

7. (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...

8. (neo)classical model of privacy $s WTA WTP Privacy

9. Will discuss some complications... • Adaptation and loss aversion • Hyperbolic time-discounting • Preference uncertainty/constructed preferences ... then outline a simple perspective on individual privacy and present experimental tests of a few of its implications

10. 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

11. 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

12. 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)

13. 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

14. Sell iPod Nano? $50

15. Buy Digital Camera? $40

16. Choose Wireless Mouse? $45 (get money) (get product)

17. Choose Money? $55 (get product) (get money)

18. Mean prices by condition

19. 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 GroupConditionsubjectsvaluevalue CMU Prediction 14 $3.73 $5.40 (0.41) (0.65) No prediction 13 ------ $6.46 (0.54) PITT Prediction 22 $3.27 $4.56 (0.48) (0.59) No prediction 17 ------ $4.98 (std. errors in parentheses) (.53)

20. 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

21. Concern about global warming as a function of problem severity (theoretical analysis)

22. Concern about global warming as a function of problem severity (theoretical analysis)

23. 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

24. 'Schindler's List' study In exchange for completing an unrelated survey, subjects receive three free video loans from our collection

25. 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 Schindler's list chosen only once to be watched on the day of choice; 13 times on future days.

26. Implications for privacy: People won’t weigh short-term benefits of divulgence against long-term consequences for privacy in even-handed fashion

27. 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)

28. Present ‘state of the art’: multiple motives(Frederick & Loewenstein, under review)

29. 53% Choice 47% $67 Pricing $78 Allocation $75 $75

30. 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

31. 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’

32. 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

33. Results

34. Coherent arbitrariness can be seen in numerous domains, e.g., • labor supply • criminal deterrence • financial markets (efficient markets)

35. Implication for privacy: people don’t have a clue about how important privacy is; however, they are likely to respond sensibly to changes

36. 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)

37. Two studies of privacy (collaborations with Alessandro Acquisti and Leslie John)

38. 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

39. 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.”

40. Please answer the following questions, which refer to your educational experience since high school.

41. results • Most people would tell us almost anything and everything (even after giving us an email address that could easily be used to identify them) • Small reassurance had little effect, but substantive reassurance backfired (as predicted)

42. Innocuous Questions (6) Probability of responding affirmatively

43. Sensitive Questions (6) Probability of responding affirmatively

44. Study 2: explicit versus implicit inquiries about sensitive behaviors

45. Initial page from which NYTs readers are diverted to different survey versions...

47. 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

48. 1. I have read and understand these instructions. 1. I have read and understand these instructions. PLEASE READ THIS NOTE! This is not the usual yada-yada!This is a study of ethical standards. In the next pages, you will be presented with a series of statements describing various behaviors. We are trying to determine which types of behaviors are seen as more or less ethical. We would like you to rate the extent to which you think each behavior is unethical. (If you believe that the behavior has nothing to do with ethics, choose the "Not at all unethical" option as your answer.) **NOTE: Because people are sometimes not objective about behaviors they have not personally engaged in, we are only interested in your ratings of behaviors in which you HAVE engaged. Therefore, ONLY IF you HAVE engaged in the given behavior (i.e. at least once), please RATE it. Otherwise, please leave all remaining items BLANK.** Example: Imagine that you are asked to judge how unethical it is to tell a white lie, and imagine that you have told at least one white lie in your life. You think it is only somewhat unethical. Then, in the following question, you would click on the "somewhat unethical" box. PLEASE READ THIS NOTE! This is not the usual yada-yada!This is a study of ethical standards. In the next pages, you will be presented with a series of statements describing various behaviors. We are trying to determine which types of behaviors are seen as more or less ethical. We would like you to rate the extent to which you think each behavior is unethical. (If you believe that the behavior has nothing to do with ethics, choose the "Not at all unethical" option as your answer.) **NOTE: Because people are sometimes not objective about behaviors they have not personally engaged in, we are only interested in your ratings of behaviors in which you HAVE engaged. Therefore, ONLY IF you HAVE engaged in the given behavior (i.e. at least once), please RATE it. Otherwise, please leave all remaining items BLANK.** Example: Imagine that you are asked to judge how unethical it is to tell a white lie, and imagine that you have told at least one white lie in your life. You think it is only somewhat unethical. Then, in the following question, you would click on the "somewhat unethical" box. commission condition...

49. commission condition...

50. Results..