Economic essays on privacy, big data, and climate change

This doctoral thesis aims to advance our understanding of major topics of concern in the 21st century using theoretical as well as empirical economic methodologies. All three topics do and will continue to affect people’s lives as they can substantially shape the functioning of our societies. Thematically linked, Chapter 2 and 3 both focus on privacy choices and their consequences in the context of big data algorithms that target individual consumers. In contrast, Chapter 3 and 4 are linked methodologically as both present results from economic laboratory experiments, where the former focuses on cognitive challenges of individual decision-makers and the latter on challenges to coordination and cooperation between decision-makers.
Chapter 2 presents results from a theoretical model where consumers face a monopolistic seller who is not only capable of perfect price discrimination but also more strategically sophisticated than the consumers. The model shows that consumers use a costly privacy-protective sales channel even in the absence of an explicit taste for privacy if they are not too strategically sophisticated.
Chapter 3 presents results from an economic laboratory experiment related to the model developed before. Finding substantial deviations from Nash equilibrium predictions. Addressing cognitive constraints often present in privacy choices, some evidence for two alternative explanations is found: level-k thinking and reinforcement learning. A policy treatment resembling privacy-by-default mechanisms leads to a strong increase in hiding behavior.
Chapter 4 presents results from an economic laboratory experiment of a dynamic resource extraction game that mimics the global multi-generation planning problem for climate change and fossil fuel extraction. The findings from this experiment suggest that successful cooperation does not only need to overcome a gap between individual incentives and public interests. There is also a fundamental heterogeneity between subjects with respect to beliefs and preferences about the way in which this should be achieved.