Data Privacy and Temptation

John Zhuang Liuy | Michael Sockinz | Wei Xiong |

This paper analyzes how different data-sharing schemes of a digital platform may affect consumer surplus and social surplus when a fraction of the consumers have weak self-control and su§ers from targeted advertising of temptation goods, such as gambling and video games. While sharing consumer data with firms improves the e¢ ciency of matching consumers with normal consumption goods, it also exposes weak-willed consumers to temptation goods. Despite the seeming appeal of the opt-in policy of allowing each consumer to opt in or out of data sharing, our analysis shows that this policy may not be effective in protecting severely tempted consumers. When other consumers, motivated by the improved access to normal goods, choose to share their data, their opt-in reduces the anonymity of the weak-willed consumers who choose to opt out. To alleviate this externality, privacy protection regulation needs to limit the bundling of the consumer authorization to share data with normal good and temptation good sellers. |

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