Valuing Intrinsic and Instrumental Preferences for Privacy

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Abstract
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 consumer data. Consumers’ self-selection into data sharing depends on the respective magnitudes and correlation between the two preference components and often deviates from the “low types are more willing to hide” argument. Through counterfactual analysis, I show how this more nuanced selection pattern changes a firm’s inference from consumers’ privacy decisions and its data-buying strategy.

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