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When personal data has public value

Privacy regulations must take into account the “social” dimension of the personal data that users share online, suggests a new study


In recent years, technology giants such as Facebook, Google and Amazon have come under increased scrutiny of privacy watchdogs. With rising concerns of data misuse, regulators are scrambling to ensure that users get greater control over their personal information. However, a new VoxEU article argues that privacy rules cannot be restricted to the concerns of individual consumers, as data has a “social" dimension to it.

The article, written by Dirk Bergemann of Yale University and others, says that individual users’ data are predictive of the behaviour of others. For example, when an individual buys a product on Amazon, they convey information about how likely other similar consumers are to buy the same item. The authors describe this as the “externality" of data.

The authors argue that aggregating data of individual consumers may allow them to retain some form of privacy but it does not prevent such externalities. Even if acquiring data gets cheaper for companies, the value of the data for the end producer using that information does not reduce. If one consumer does not participate in the process, the producer can use the aggregated data to predict the missing data point.

As such, it’s not enough to compensate an individual consumer for their personal data. A consumer’s choice to share their data takes into account only their private costs and benefits and not the externalities they create for others, the authors say.

Such externalities can often be positive, such as real-time traffic updates, but they can also hurt consumers. A producer can use aggregated data from just a few similar consumers to make inferences about a group. This can lead to price discrimination, for instance, based on location.

Therefore, the authors argue that privacy regulations should focus less on personalised prices and more on group-based price discrimination.

Also read: The economics of social data

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