The Digital Privacy Paradox: Small Money, Small Costs, Small Talk

This paper uses data from the MIT digital currency experiment to shed light on consumer behavior regarding commercial, public and government surveillance. The setting allows us to explore the apparent contradiction that many cryptocurrencies offer people the chance to escape government surveillance, but do so by making transactions themselves public on a distributed ledger (a ‘blockchain’). We find three main things. First, the effect of small incentives may explain the privacy paradox, where people say they care about privacy but are willing to relinquish private data quite easily. Second, small costs introduced during the selection of digital wallets by the random ordering of featured options, have a tangible effect on the technology ultimately adopted, often in sharp contrast with individual stated preferences about privacy. Third, the introduction of irrelevant, but reassuring information about privacy protection makes consumers less likely to avoid surveillance at large. ∗Susan Athey: Graduate School of Business, Stanford University, and NBER. Christian Catalini: MIT Sloan School of Management, MIT. Catherine Tucker: MIT Sloan School of Management, MIT and NBER.