Transient Customer Response to Data Breaches of Their Information

Abstract

Cybersecurity breaches pose a substantial privacy concern in the digital era. We investigate how customers respond to privacy leakage in multiple unexpected data breaches. Difference-in-differences estimates show that digital payments declined by 4.6% ~ 7.5% relative to cash payments immediately after an unexpected data breach in a food delivery platform, but the gap disappeared three months later. Customer entry and exit also exhibit weak, short-lived changes. Additional analyses on bank and online grocery data breaches uncover even weaker direct and spillover effects of data breaches. Our findings imply that the perceived benefit of convenience overweighs the cost of privacy leakages.

Keywords: data breach, convenience, privacy, digital economy

JEL Classification: D12, D18, G29