Monday, May 26, 2014

I'm Not An Economist

I don't even play one on TV. And I try to make an effort not to pretend to be one on the Internet beyond applying the bare-bones basics.

Nonetheless, I'm going to take a swat at an economic issue here, and in doing so I'll be gainsaying both a fairly standard libertarian talking point and the talking point of its opponents.

The issue is whether or not consumers "pay for"  Internet services that are priced "free" in terms of demand for monetary payment. Paul Ohm at Jotwell does a reasonable job of outlining the two sides (he takes one of those sides), while linking to a couple of source papers. I'm going to link/cite Ohm and leave it up to you to decide whether the papers he cites in turn are worth your reading time. So, Ohm:

Have you heard any of these arguments lately? Consumers willingly pay for the wonderful free services they enjoy using the currency of their personal information. We can't trust surveys that say that consumers despise commercial tracking practices, because the revealed preferences of consumers demonstrate that they are willing to tolerate tracking in return for free social networking services, email, and mobile apps. If privacy law X were implemented, it would kill the free Internet (or more immodestly, the Internet).

... and ...

The core libertarian argument that drives the rebuttal in Free and Free Fall is that people "pay" for free, online services with their data. No they don’t, at least not if "payment" is supposed to represent an accurate measure of consumer preference and definitely not if "payment" means that consumers rationally give up data about themselves in exchange for free services.

To which I reply:

  1. Yes, libertarian economists do sometimes tend to overplay the "rationality" hand with respect to what consumers do and why they do it;
  2. But that doesn't and shouldn't matter.
The price of "free services" on the Internet is usually at least partially paid in personal data. I want free web mail. In return for that free web mail, I let Google show me ads. Pursuant to Google showing me ads, I give them some of my personal information and allow them to track my activities on the Internet so that they can target those ads to my interests. This theoretically means that both I and the advertisers benefit because I'm seeing ads for things I might want to buy. And of course Google profits by selling those ads and (at least implicitly) that information.

Is it likely that many, perhaps even most, Internet users don't think very hard about what they're paying for what they're getting? Absolutely.

On the other hand, many, perhaps most, shoppers make irrational decisions all the time. There's a reason that the candy bars, individual beverage servings and tabloid newspapers are located next to the cash register at your local grocery store. The store owners (rationally) expect that a non-trivial number of customers will (quite possibly irrationally) "impulse buy" items like that.

The important question about my decision to pay for Internet services with my personal information isn't whether or not that decision is rational. It's whether or not that decision is voluntary.

As long as a provider of "free" Internet services isn't actually defrauding me in some way -- lying about how my data will be used in order to get something of value through deception -- the decision to engage in that transaction is and should be mine, not some government regulator's or "privacy advocate"'s.

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