We measure willingness to pay for privacy in a field experiment. Participants bought at most one DVD from one of two competing online stores. One store consistently required more sensitive personal data than the other, but otherwise the stores were identical. In one treatment, DVDs were one Euro cheaper at the store requesting more personal information, and almost all buyers chose the cheaper store. Surprisingly, in the second treatment when prices were identical, participants bought from both shops equally often.
Privacy and human behavior in the age of information
This Review summarizes and draws connections between diverse streams of empirical research on privacy behavior. We use three themes to connect insights from social and behavioral sciences: people's uncertainty about the consequences of privacy-related behaviors and their own preferences over those consequences; the context-dependence of people's concern, or lack thereof, about privacy; and the degree to which privacy concerns are malleable—manipulable by commercial and governmental interests. Organizing our discussion by these themes, we offer observations concerning the role of public policy in the protection of privacy in the information age.
The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field
Recent research suggests that the method of making a payment can influence the willingness to pay and consumption behavior. In this manuscript, we argue that payment mechanisms differ from each other along the dimensions of transparency, and that the degree of transparency correlates positively with the pain of paying using the mechanism, and negatively with consumption and spending. We replicate previous experimental results using quasi-experiments from the field, and find that the lower the payment transparency, the greater is the consumption. However, this effect is weak for products whose consumption rates are inflexible.
A Duty of Loyalty for Privacy Law
Data privacy law fails to stop companies from engaging in self-serving, opportunistic behavior at the expense of those who trust them with their data. This is a
Nonrivalry and the Economics of Data
(September 2020) - Data is nonrival: a person's location history, medical records, and driving data can be used by many firms simultaneously. Nonrivalry leads to increasing returns. As a result, there may be social gains to data being used broadly across firms, even in the presence of privacy considerations. Fearing creative destruction, firms may choose to hoard their data, leading to the inefficient use of nonrival data. Giving data property rights to consumers can generate allocations that are close to optimal. Consumers balance their concerns for privacy against the economic gains that come from selling data broadly.
How Field Experiments in Economics Can Complement Psychological Research on Judgment Biases
This review summarizes results of field experiments examining individual behaviors across several market settings—from open-air markets to rideshare markets to tax-compliance markets—where people sort themselves into market roles wherein they make consequential decisions. Using three distinct examples from my own research on the endowment effect, left-digit bias, and omission bias, I showcase how field experiments can help researchers understand mediators, heterogeneity, and causal moderation involved in judgment biases in the field. In this manner, the review highlights that economic field experiments can serve an invaluable intellectual role alongside traditional laboratory research.
Measuring the Privacy Experience
How do you know that a product respects your privacy – other than by wading through the fine print? We’ve created a framework to measure the way people actually experience privacy in tech products.
Demand characteristics in human–computer experiments
Demand characteristics refer to cues that can inform participants in experiments about the hypothesis and influence their behavior. They lead researchers to erroneously infer non-existing effects, undermining the experimental integrity of empirical studies. Despite a widespread acknowledgment of their confounding influence in experimental psychology, experiments involving humans and computers to a lesser extent consider effects of demand characteristics, as computerized protocols are thought to be immune to some experimenter biases. Furthermore, demand characteristics are considered to mainly effect subjective measures. As a result, demand characteristics often remain uncontrolled in studies involving computers, and in particular for objective measures such as performance. In this paper, we present two experiments that underline the importance of demand characteristics in human–computer interaction experiments. In a text-entry study, we made participants believe they were evaluating a research-based keyboard. This belief led to increased performance and self-reported user experience. In a second study, we conducted a thought experiment on the illusion of body ownership in virtual reality, where the experimental design indicated the study hypothesis. We found hypothesis-compliant responses from participants, even when they did not experience the illusion. We conclude that demand characteristics pose a significant challenge to the interpretation and validity of human–computer experiments, even when they are fully automated. We discuss the implications and offer guidelines to mitigate effects of demand characteristics.
Small Probabilistic Discounts Stimulate Spending: Pain of Paying in Price Promotions
AbstractWe find that small probabilistic price promotions effectively stimulate demand, even more so than comparable fixed price promotions (e.g., “1% chance it’s free” vs. “1% off,” respectively), because they more effectively reduce the pain of paying. In three field experiments at a grocer, we exogenously and endogenously manipulated the salience of pain of paying via elicitation timing (e.g., at entrance or checkout) and payment method (i.e., cash/debit cards or credit cards). This modulated the attractiveness of probabilistic discounts and their ability to stimulate spending. Shoppers paying with cash or debit cards, for example, spent 54% more if they received a 1% probabilistic discount than a 1% fixed discount (experiment 2). A fourth experiment showed that consumers’ sensitivity to pain of paying modulates the greater comparative efficacy of small probabilistic than fixed discounts. More broadly, the results elucidate a novel affective route through which price promotions stimulate demand––pain of paying.
Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay
In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large (up to 100%) and it appears unlikely that it arises due solely to liquidity constraints. In addition to demonstrating the effect, we provide a methodology for detecting it, and our findings suggest a source of variance to test alternative explanations.
Designing Information Provision Experiments
Information provision experiments allow researchers to test economic theories and answer policy-relevant questions by varying the information set available to respondents. We survey the emerging literature using information provision experiments in economics and discuss applications in macroeconomics, finance, political economy, public economics, labor economics, and health economics. We also discuss design considerations and provide best-practice recommendations on how to (i) measure beliefs; (ii) design the information intervention; (iii) measure belief updating; (iv) deal with potential confounds, such as experimenter demand effects; and (v) recruit respondents using online panels. We finally discuss typical effect sizes and provide sample size recommendations.
Disclosure: Psychology Changes Everything
We review literature examining the effects of laws and regulations that require public disclosure of information. These requirements are most sensibly imposed in situations characterized by misaligned incentives and asymmetric information between, for example, a buyer and seller or an advisor and advisee. We review the economic literature relevant to such disclosure and then discuss how different psychological factors complicate, and in some cases radically change, the economic predictions. For example, limited attention, motivated attention, and biased assessments of probability on the part of information recipients can significantly diminish, or even reverse, the intended effects of disclosure requirements. In many cases, disclosure does not much affect the recipients of the information but does significantly affect the behavior of the providers, sometimes for the better and sometimes for the worse. We review research suggesting that simplified disclosure, standardized disclosure, vivid disclosure, and social comparison information can all be used to enhance the effectiveness of disclosure policies.
Not Learning from Others
We study social learning using experiments where two people independently learn relevant information and can share it to make accurate private decisions. Across three experiments, people are substantially less sensitive to information others discover than to equally-relevant information they discovered themselves. This holds when they must learn information from others through discussion; when the experimenter perfectly communicates the information; and even when participants observe others’ information with their own eyes. Our results therefore stem not from a failure to elicit information from others but a systematic tendency to underweight it relative to one’s own information. Our findings illustrate a powerful barrier to social learning that might underlie many documented cases of failure to learn from others.
Integrative experiments identify how punishment affects welfare in public goods games
Despite decades of research, the conditions under which punishment promotes cooperation remain unclear. Through an integrative experiment varying 14 design parameters of public goods games across 360 experimental conditions (147,618 decisions from 7100 participants), we reveal substantial heterogeneity in punishment effectiveness: Its impact on welfare ranges from 43% improvement to 44% reduction depending on the game parameters. To characterize these patterns, we developed models that outperformed human forecasters in predicting punishment effectiveness in new experiments. Communication emerges as the most important factor, followed by contribution framing (opt out versus opt in), contribution type (variable versus all-or-nothing), game length, and outcome visibility, though these factors often interact. The results reframe the debate from whether punishment works to when it does, demonstrating how integrative experiments enable discovery of generalizable patterns in social phenomena. , Editor’s summary People face conflicts between maximizing personal gain versus supporting collective interests. If we cooperatively recycle or donate to charities, it benefits society, but it also costs us time and resources that could be selfishly preserved for ourselves. We impose penalties to deter those undesirable or selfish behaviors, but under what conditions do punishments or penalties effectively modify behavior to benefit group welfare? Alsobay et al . systematically and simultaneously varied 14 factors together instead of in isolation. Punishment was unequivocally most effective when paired with consistent communication, particularly over time. Another effective factor was “opting out” or withdrawing some, but not all, endowments already in the public fund. These methodological advances revealed when, rather than whether, punishment works. —Ekeoma Uzogara , INTRODUCTION Human societies face many situations where individual and collective interests conflict, often referred to as social dilemmas. Costly peer punishment has been studied for more than 25 years in public goods games (stylized behavioral experiments in which individuals decide how much to contribute to a shared pool that benefits everyone) as a mechanism to promote cooperation. Prior research has identified many contextual factors that moderate punishment’s effectiveness, including game length, communication, group size, punishment cost, and so on. However, the specific conditions under which punishment improves group welfare remain unclear. RATIONALE We argue that this lack of clarity derives from the dominant experimental paradigm, in which any given study manipulates only one or a few theoretically informed factors. Because such studies differ in many ways (different experimental procedures, populations), their results are often difficult to compare or integrate. Consequently, one can list many factors that have some effect, but cannot say how much each matters relative to the others, or how they work together, and as a result, cannot predict when punishment will help or harm welfare in new settings. To address this fundamental knowledge gap, we use an integrative experimental design and systematically vary 14 parameters across 360 conditions (147,618 decisions from 7100 participants) to elucidate when punishment improves versus undermines welfare in public goods games, which factors matter most, and how they interact. RESULTS The effect of punishment on welfare ranged from 43% improvement to 44% reduction depending on the specific combination of game parameters. To characterize this heterogeneity, we trained a model that outperformed all 553 human forecasters (laypeople and experts) in predicting whether punishment would help or harm welfare in new experiments. Communication emerged as roughly three times more important than any other factor, followed by contribution framing (opt in versus opt out), contribution type (variable versus all-or-nothing), game length, and peer outcome visibility (whether participants can see others’ earnings). These factors often interact. For example, longer games enhance punishment’s effectiveness only when communication is available, and contribution framing effects depend on both contribution type and outcome visibility. CONCLUSION Many phenomena in social science are shaped by many factors whose interactions are consequential, yet the dominant experimental paradigm often limits its inquiry to “does a given effect exist?” and examines hypothesized factors in isolation. As a result, research programs can accumulate many partial explanations without a clear picture of how they combine to determine outcomes across settings. Knowing that factors matter individually is fundamentally different from knowing how much each matters and how they interact. The integrative approach implemented here offers one way forward. It varies many factors simultaneously within a shared design space, evaluates models by their predictive accuracy on new experiments, and probes those models to constrain and develop theory. Our hope is that integrative experiment designs, combined with models that integrate prediction and explanation, represent a path toward more cumulative social science. Integrative experiment reveals when punishment helps versus harms. We systematically varied 14 design parameters across 360 experimental conditions. The effect of punishment on cooperation efficiency ranged from −44% to +43% depending on the specific game parameters. Communication emerged as three times more important than any other factor, followed by contribution framing, contribution type, and game length.
Purchase Justifiability Drives Payment Choice: Consumers Pay with Card to Remember and Cash to Forget
AbstractAlthough consumers often have multiple payment methods at their fingertips, such as cash and credit/debit cards, prior research is silent on how consumers choose between them. We home in on a key element of purchase—purchase justifiability—that affects how consumers choose to pay. Analysis of 118,042 real-world purchases and six experiments reveals that when consumers are motivated to forget (vs. remember) a purchase because they see it as difficult (vs. easy) to justify, they have an increased preference to pay with cash (vs. card) because cards create a “paper/electronic trail” that aids memory retrieval. These payment preferences are strongest among consumers most likely to recall/track their card spending, and manifest only when card expenses are trackable. We reconcile our results with the classic effect of payment method on pain of paying and discuss implications for merchants and for financial institutions designing payment methods of the future.
