Towards a Resolution of the Privacy Paradox

27 Pages Posted: 4 Feb 2022 Last revised: 29 Mar 2022

See all articles by Kristof Madarasz

Kristof Madarasz

London School of Economics & Political Science (LSE)

Marek Pycia

University of Zurich

Date Written: January 2022

Abstract

This paper provides an explanation of the so-called privacy paradox and describes a more general informational 'irrelevance' result. We show that in a large class of imperfect information dynamic games between the buyer, the seller, and privacy platforms, the buyer chooses not to bear any direct cost of protecting her privacy even if leakage of her information affects the prices she faces and hence her surplus from trade. More generally, we show that the informed party's choice of privacy (mode of communication) is driven solely by the direct cost of talk rather than by the information such talk conveys: choosing between different privacy options, the buyer always chooses a cheapest option irrespective of its and its alternatives' informational characteristics.

Suggested Citation

Madarasz, Kristof and Pycia, Marek, Towards a Resolution of the Privacy Paradox (January 2022). CEPR Discussion Paper No. DP16873, Available at SSRN: https://ssrn.com/abstract=4026756

Kristof Madarasz (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Marek Pycia

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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