Valuing Intrinsic and Instrumental Preferences for Privacy

I empirically separate two components in a consumer’s privacy preference. The intrinsic component is a “taste” for privacy, a utility primitive. The instrumental component comes from the consumer’s anticipated economic loss from revealing his private information to the firm, and arises endogenously from a firm’s usage of consumer data. Combining an experiment and a structural model, I measure the revealed preferences separately for each component. Intrinsic preferences have seemingly small mean values, ranging from $0.14 to $2.37 per demographic variable. Meanwhile, they are highly heterogeneous across consumers and categories of data: The valuations of consumers at the right tail often exceed the firm’s valuation of individual consumer data. Consumers’ self-selection into data sharing depends on the respective magnitudes and correlation between the two preference components, and often deviate from a simplistic “low types are more willing to hide” argument. Through counterfactual analysis, I show how this more nuanced selection pattern changes what firms can infer from consumers’ privacy decisions and its implication on effective data buying strategies