• EconAfterHours

Privacy and Personalisation: Are We Ready for the Trade Off?

Updated: Mar 11, 2020

by Shubhangi Kumar

In April 2018, the world erupted into a furore over the actions of one of the most celebrated entrepreneurs of our generation as Mark Zuckerberg’s testimonies from the investigation on the Facebook-Cambridge Analytica scandal brought into the limelight the debate on privacy. It is not the first time that this issue has been raised in our era of ever-increasing technology and ever-improving algorithms; the Caller ID technology of the late 1980s that allowed companies to identify the caller before receiving a call faced a huge backlash as consumers lost their anonymity.

The privacy-personalisation paradox is becoming increasingly relevant. On the one hand, consumer profiling has enabled businesses to increase consumer satisfaction and hence consumer loyalty through personalisation and led to the development of just-in-time industries1. On the other, extensive profiling technology has given rise to the following dimensions of concern: the collection of personal information, control over the use of personal data, and awareness of privacy practices and how personal information is used2. Moreover, it has given businesses the opportunity to merge anonymous information with personally identifiable information3. A 2013 study reveals that ‘likes’ on Facebook can reveal several personality traits, including sexual orientation, ethnicity, and even happiness, without this being explicitly disclosed4: information that wasn’t meant to be disclosed but will now make the user a target for particular advertisements. Such usage of preferences without the consumer’s consent costs him/her the right to decide what to consume and with whom to interact.

We appreciate and rely on personalisation more than we think.


Despite these apprehensions, several studies have identified privacy pragmatists: those willing to trade privacy for certain benefits5. However, the willingness to share information is negatively influenced by the individual specific concern for the privacy of their anonymous, personally unidentifiable and personally identifiable information and positively related to factors that build trust in the vendor6. This implies that as awareness and information availability increase, fewer consumers will be willing to do so unless protected by better privacy policies: a view that is supported empirically. In a study conducted by researchers from the Carnegie Mellon University7, participants were asked to shop online, with their search engines attached to a software that would rate each website’s privacy policy. The volunteers chose sites with better privacy policies and were even willing to pay a premium to have their data protected, provided salient information on the privacy policy was readily available. Those in the control group, not provided with a prominent privacy policy, purchased goods from the site with the lowest price.

The question is: how willing are companies to actively make their privacy policies transparent enough? Most make tremendous sums from selling data points; in fact, Google is actively matching people to groups, thus generating results that could benefit advertisers. Virtually all forms of electronic activity leave a digital trail that enables highly accurate consumer profiling and highly specific advertising – to an extent that would be impossible in a world without technology. As long as the internet remains predominantly freely accessible and advertising forms the lion’s share of companies’ revenues, companies are unlikely to be willing to trade off the benefits of profiling and an existing revenue stream for better privacy policies.

References

1: RK Chellappa and R Sin, Personalization versus Privacy: An Empirical Examination of the Online Consumer’s Dilemma, 2005

2: N Malhotra, S. S. Kim, J. Agarwal, Internet users’ information privacy concerns (IUIPC), 2004

3: Federal Trade Commission

4: M Kosinski, D Stillwell and T Graepel, Private traits and attributes are predictable from digital records of human behaviour, 2013

5: C Hoofnagle and J Urban, Alan Westin’s Privacy Homo Economicus, 2014

6: RK Chellappa and R Sin, Personalization versus Privacy: An Empirical Examination of the Online Consumer’s Dilemma, 2005

7: Tsai, Janice Y., et al., The Effect of Online Privacy Information on Purchasing Behavior: An Experimental Study, 2011

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