Currently we are in the era of Internet of things (IoT) and as we can see the demand, supply and exchange of personal data has been increased exponentially. Despite the benefits of these data, they could make negative effects for firms and individuals, which are mainly associated with privacy issues. individuals claim to be concerned about these privacy issues, although it seems that their concern is not absolute, they are not completely aware of their privacy rights and they do little to protect it. There is always a trade-off between privacy and information disclosure decision and economic benefits.
Individuals are willing to exchange their information to get desirable outcomes and services. As an example, consumers want certain amount of information to be available to producers. This type of information transmission may result in welfare increase and sharing personal information to this extent seems to be fine. However as soon as it goes further and become accessible to other individuals and firms for any other purpose e.g. advertising it will lead to some privacy issues. The enormous amount of collected information has substantial economic value. Personal information (age, address, gender, preferences and income) can be considered as a business asset.
“If you are not paying for it, you are the product.” Companies like Facebook, Google say using their services is free and always will be. It sounds too good to be true. As can be imagined, the lunch never comes for free, at least most of the times. Since consumers do not pay for such digital services with cash or by any means of money transfer, economists cannot analyze them like normal transactions. The “economics of free” requires exclusive treatment.
As the technology grows exponentially, protecting user privacy is getting more challenging and it not possible to apply old approaches to guarantee privacy protection. Using regulations and government legislations, access control and collection limits does not seem to be enough and cannot guarantee no unpredictable outcomes and data breaching.
The pervasiveness of free services is due to the accumulated history. At the beginning, while consumers were thirsty to get stuff for nothing, they didn’t know, still do not know, how much their data are worth. Moreover, unlike the real economy, in digital economy the scarcity is not a constrained, and the data are easy-to-transport, as well as inexhaustible.
Although users do get the digital services for ‘FREE’, providers have certain fixed costs to cover. Thus, instead of having users as a customer, those companies treat the users as a product and sell them to third party companies. In the second quarter of 2017, Facebook eked an average of $4.65 out of each of its users by peppering screens with ads and promoted posts. (By comparison, just eight cents came from payments and other fees, mainly from people paying for stuff within virtual games.) (The Economist)
Digital services use all possible tricks of psychology to stimulate you to share your data more extensively. Not only free services do that, but also e-commerce websites, digital rental services and many more others. With the advancement of machine learning and AI techniques our data will be more precisely processed and will be sold back to us as a product. So, how can internet users protect (or manage) their privacy in this ‘free economy’?
An effective way for data protection is information accountability, which means the usage of the data usage should be transparent and the owners of the data have the right to know how, when and to what extent their data are being used. This approach makes the individuals and institutions accountable for their acts.
A possible solution and approach to design accountable systems is to place a series of accountable appliances, which serve as proxies to data sources, mediating access to the data, and maintain provenance information and logs of data transfers. another possible solution can be anonymity. anonymous payments, anonymous browsing and private references seems to be a way to protect the privacy and at the same time benefiting from the new technologies
Sources: Tatari & Heydarov (2017), The Economist (2017), Wired UK (2011),