An experimental economics approach toward quantifying online privacy choices

The importance of personal privacy to Internet users has been extensively researched using a variety of survey techniques. The limitations of survey research are well-known and exist in part because there are no positive or negative consequences to responses provided by survey participants. Such limitations are the motivation for this work. Experimental economics is widely accepted by economists and others as an investigative technique that can provide measures of economic choice-making that are substantially more accurate than those provided by surveys. This paper describes our efforts at applying the techniques of experimental economics to provide a foundation for (a) estimating the values that consumers place on privacy and various forms of security (encryption, HIPAA, etc.) and for (b) quantifying user responses to changes in the Internet environment. The contribution of this study is a better understanding of individual decision-making in the context of benefits and costs of making private information available to Internet sites. Preliminary results from a series of pilot studies are consistent with optimizing behaviors, indicating that continued application of experimental economics techniques in the quantification of Internet user actions in privacy/security space will be illuminating. Our results show that Internet users place great value on security measures, both regulatory and technical, that make identity theft much less likely. Our Web-based experiments indicate that privacy- and security- enhancing protections are likely to be subject to moral hazard responses, as participants in our online experiments became more aggressive in their Internet usage with greater protection in place.

David L. BaumerEmail:

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J.C. Poindexter   is an associate professor of economics and finance in the College of Management at North Carolina State University. His research has ranged widely across topics in economics and finance. He holds a Ph.D. in Economics from the University of North Carolina at Chapel Hill. Julia B. Earp   is an associate professor of information technology in the College of Management at North Carolina State University where she is co-director of the E-Commerce Studio and a member of The Privacy Place. Her research focuses on Internet secuirty and privacy issues from several perspectives, including data management, consumer values, systems development, and policy. She has a Ph.D. in information technology from Virginia Tech. She is a member of the ACM and the IEEE. David Baumer   is a professor of law and technology in the College of Management at North Carolina State University and the head of the Business Managemment Department. His research has dealt with the law and economics of computerized information, specifically privacy policies utilized by websites. He has a Ph.D. in Economics from the University of Virginia, a J.D. degree from the University of Miami, and is a licensed attorney in the State of North Carolina.