attitudes of individuals and their actual behavior toward privacy protection.30 Given the lack of consumer demand, markets for privacy-protecting goods and services (e.g., anonymizers) will continue to remain small, and other self-regulating markets relying on consumer behavior for input may not sufficiently protect consumer privacy.31

Moreover, research in social psychology and behavioral economics indicates that the “default condition” of many choices is very “sticky”—that is, most people find it easier to accept a default choice made on their behalf regarding a putative decision than to change that choice, even if the default choice is less advantageous to them than changing that choice.32

Recent work by Acquisti is illustrative, offering an explanation for the well-known discrepancy between individuals’ attitudes and their behavior when it comes to online privacy.33 Acquisti argues that contrary to traditional economic analyses that assume that individuals are fully rational, forward-looking, Bayesian updaters who take into account how current behavior will influence their future well-being and preferences, individuals instead demonstrate various forms of psychological inconsistencies (self-control problems, hyperbolic discounting, present-biases). Furthermore, the ability to make fully informed decisions regarding one’s privacy is extremely difficult after personal information has been transmitted to a third party and can continue to change hands, without the individual’s knowledge, for any length of time.

To provide further insight on individual decision making, Acquisti relies on the concept of immediate gratification,34 an individual’s preference for well-being earlier rather than later and the tendency to engage in desirable activities over undesirable activities, even if the choice may result in negative future consequences. Furthermore, an individual’s preferences are also inconsistent over time (i.e., preferences for the future activities will change as the date to undertake the activity approaches)

30

See, for example, studies cited in Section 8 in Hui and Png, “The Economics of Privacy,” forthcoming.

31

Alessandro Acquisti, “Privacy, Economics, and Immediate Gratification: Why Protecting Privacy Is Easy, But Selling It Is Not,” in Proceedings of the 2004 BLACKHAT Conference, Las Vegas, Nev., July 2004.

32

See, for example, William Samuelson and Richard Zeckhauser, “Status Quo Bias in Decision Making,” Journal of Risk & Uncertainty 1:7-59, 1988; B.C. Madrian and D.F. Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal of Economics 116(4):1149-1187, 2001.

33

Alessandro Acquisti, “Privacy in Electronic Commerce and Economics of Immediate Gratification,” pp. 21-29 in Proceedings of the ACM Electronic Commerce Conference (EC 04), ACM Press, New York, 2004.

34

Immediate gratification is related to other types of psychological distortion described in economic and psychological literature that include time inconsistency, hyperbolic discounting, and self-control bias.



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