Escaping from Government and Corporate Surveillance. Evidence from the MIT Digital Currency Experiment

This paper uses data from the MIT digital currency experiment to shed light on consumer behavior regarding commercial and government surveillance. This 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. We find three main things. First, the effect of small incentives (financial or otherwise) may explain the privacy paradox, where people say they care about privacy but are willing to relinquish private data to firms quite easily. Second, prompts about government surveillance can lead consumers to be be more protective about linking their personal identity to their digital wallets, but such privacy enhancing behavior is suppressed in the presence of irrelevant but reassuring information about privacy protection. Third, that we also see such irrelevant but reassuring information lead consumers to be less likely to take more general actions to escape 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. Corresponding author: [email protected] 1 Summary of Main Results In the Fall of 2014, students at the Massachusetts Institute of Technology were preparing for one of the largest social science experiments the campus had seen (Catalini and Tucker, 2016): In the following weeks, every undergraduate student would be given $100 worth of Bitcoin, the first decentralized cryptocurrency to solve the double-spending problem that had plagued computer scientists’ early attempts at creating digital cash (Nakamoto, 2008; Narayanan et al., 2016). As part of the experiment students would have to select a digital wallet, create a Bitcoin address to receive the funds, and learn about encryption (PGP) to secure their incoming bitcoin. At multiple points in the process they not only faced trade-offs between privacy, security and convenience, but also had to make choices in terms of who could have access to their transactions data in the future. We find three main things. First, the effect of small incentives (financial or otherwise) may explain the privacy paradox, where people say they care about privacy but are willing to relinquish private data to firms quite easily. Second, prompts about government surveillance can lead consumers to be be more protective about linking their personal identity to their digital wallets, but such privacy enhancing behavior is suppressed in the presence of irrelevant but reassuring information about privacy protection. Third, that we also see such irrelevant but reassuring information lead consumers to be less likely to take more general actions to escape surveillance at large. In the following sections, we briefly discuss each one of these findings in more detail.