Data Privacy and Temptation

48 Pages Posted: 10 Aug 2020

See all articles by John Zhuang Liu

John Zhuang Liu

The Chinese University of Hong Kong, Shenzhen

Michael Sockin

University of Texas at Austin - Red McCombs School of Business

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2020

Abstract

This paper derives a preference for data privacy from consumers' temptation utility. This approach facilitates a welfare analysis of different data privacy regulations, such as the GDPR enacted by the European Union and the CCPA enacted by the state of California, when a fraction of the consumers may succumb to targeted advertising of temptation goods. While sharing consumer data with firms improves firms' matching efficiency of normal consumption goods, it also exposes weak-willed consumers to temptation goods. Despite that the GDPR and the CCPA give each consumer the choice to opt in or out of data sharing, these regulations may not provide sufficient protection for severely tempted consumers because of a negative externality in which the opt-in decision of some consumers reduces the anonymity of those who opt out. Our analysis also shows that the default choices instituted by the GDPR and the CCPA can lead to sharply different outcomes.

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Suggested Citation

Liu, John Zhuang and Sockin, Michael and Xiong, Wei, Data Privacy and Temptation (August 2020). NBER Working Paper No. w27653, Available at SSRN: https://ssrn.com/abstract=3670488

John Zhuang Liu (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Michael Sockin

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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