and are disproportionate (i.e., perception of risks will vary for near-term and longer-term consequences). In relating this to an individual’s online behavior, he suggests that individuals want to protect their privacy in principle but put off to some time in the future the effort required, rather than taking immediate action.

Combining these two sets of factors reveals broader consequences for individual privacy protection. Acquisti suggests that individuals tend to dismiss possible future consequences of revealing personal information for an immediate reward, but also lack complete information to grasp the magnitude of the risk—because each instance of revealing personal information can be linked together, resulting in “a whole that is more than the sum of its parts.” Acquisti concludes that more attention will have to be paid to behavioral responses to privacy protections, rather than focusing on protecting privacy solely through informational awareness and industry self-regulation.

Acquisti’s conclusions have deep privacy implications. For example, one principle of fair information practice (see Box 1.3) is that of choice and consent. But the principle itself is silent on whether the appropriate choice should be opt-in or opt-out. Under the canons of traditional economic analysis and the rational actor model, these regimes are essentially equivalent (under the assumption that there are no transaction costs associated with either choice). But there are impassioned arguments about whether opt-in or opt-out consent better reflects the willingness of data subjects to provide information without limitations on its secondary use—and these arguments are rooted in a realization that in the real world, the default choice makes a huge difference in the regime that will end up governing most people. Those who advocate opt-out regimes know that most people will not take the trouble to opt out, and thus they can be presumed to “want” to allow information to be collected. Those who advocate opt-in regimes know that most people will not take the trouble to opt in, and that their privacy (in this case, their immunity to having information collected) will thus be protected.

Behavioral economics calls into question how to determine the value that consumers place on their personal information. Hui and Png suggest that one important factor is that the information owners are unlikely to fully take into account the benefit of their information to the parties wanting their information.35 This has both a societal consequence (in that overall welfare is reduced as these parties are unable to exploit that information) and personal consequences (in that they may thus exclude


Kai-Lung Hui and I.P.L. Png, “The Economics of Privacy,” in Terry Hendershott, ed., Handbook of Information Systems and Economics, Elsevier, forthcoming.

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