Privacy Risks in the Internet of Things: The Impact of Ambiguity Aversion on Transparency Choices

33 Pages Posted: 20 Dec 2021 Last revised: 8 Aug 2022

See all articles by Nikolai Sachs

Nikolai Sachs

University of Passau

Daniel Schnurr

University of Regensburg

Date Written: August 6, 2022

Abstract

Transparency is viewed as an essential prerequisite for consumers to make informed privacy decisions in digital markets. However, it remains an open research question whether and when individuals actually prefer transparency about privacy risks when given a chance to avoid it. We investigate this question with a randomized controlled online experiment based on an Ellsberg-type design, where subjects repeatedly choose between risk and ambiguity while facing the threat of an actual disclosure of their personal data. We find empirical support for ambiguity preferences as a novel behavioral mechanism underlying people's transparency choices in privacy contexts. In particular, we find that most individuals avoid ambiguity and prefer transparency for low likelihood privacy losses. However, this pattern reverses for high likelihood losses and when subjects perceive data disclosure as a gain. Most notably, a significant share of people seek ambiguity and thus prefer to avoid transparency when facing high likelihood privacy risks.

Keywords: privacy; transparency, privacy uncertainty, privacy risks, ambiguity attitudes, data losses, online experiment, GDPR

JEL Classification: D81, D12, C90

Suggested Citation

Sachs, Nikolai and Schnurr, Daniel, Privacy Risks in the Internet of Things: The Impact of Ambiguity Aversion on Transparency Choices (August 6, 2022). Available at SSRN: https://ssrn.com/abstract=3987945 or http://dx.doi.org/10.2139/ssrn.3987945

Nikolai Sachs

University of Passau ( email )

Dr. Hans-Kapfinger-Str. 12
Passau, 94032
Germany

Daniel Schnurr (Contact Author)

University of Regensburg ( email )

Bajuwarenstrasse 4
Regensburg, 93040
Germany

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