Consumers' Privacy Choices in the Era of Big Data

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Abstract

Recent progress in information technologies provides sellers with detailed knowledge about consumers' preferences, approaching perfect price discrimination
in the limit. We construct a model where consumers with less strategic sophistication than the seller's pricing algorithm face a trade-off when buying. They choose between a direct, transaction cost-free sales channel and a privacy-protecting, but costly, anonymous channel. We show that the anonymous channel is used even in the absence of an explicit taste for privacy if consumers are not too strategically sophisticated. This provides a micro-foundation for consumers' privacy choices. Some consumers benefit but others suffer from their anonymization.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages57
Volume2018-012
Publication statusPublished - 5 Apr 2018

Publication series

NameCentER Discussion Paper
Volume2018-012

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Keywords

  • privacy
  • big data
  • perfect price discrimination
  • level-k thinking

Cite this

Prüfer, J., & Dengler, S. (2018). Consumers' Privacy Choices in the Era of Big Data. (CentER Discussion Paper; Vol. 2018-012). CentER, Center for Economic Research.