Revealed Privacy Preferences: Are Privacy Choices Rational?

Abstract

We investigate the extent to which trade-offs involving the sharing of personal information exhibit consistency with an underlying rational preference for privacy. In an experiment, people engage in trade-offs across two domains of personal information sharing, allowing us to classify whether their choices satisfy the generalized axiom of revealed preference. They also subsequently price the sharing of their personal information. Sixty-three percent of subjects act consistently with a rational preference ordering when allocating privacy levels, a level comparable to that observed in other domains. Individuals who are inconsistent when engaging in simple privacy trade-offs exhibit substantially more costly preference reversals when pricing personal information sharing. Only one-third of subjects exhibit consistency across both the selection of personal information to share and the pricing of such information sharing. Our results imply that monetizing personal information can have distinct welfare consequences for people with different degrees of rationality in their underlying ability to make sensible trade-offs involving personal information. We also provide evidence that preferences elicited over choices in our experiment correlate with real-world privacy behaviors. This paper was accepted by Yan Chen, behavioral economics and decision analysis. Funding: This work was supported by Forschungskredit (University of Zurich) [Grant FK-17-017] and Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung [Grant 174630] to Y.S. Lee. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.00807 .