Privacy Risks in the Internet of Things: The Impact of Ambiguity Aversion on Transparency Choices
33 Pages Posted: 20 Dec 2021 Last revised: 8 Aug 2022
Date Written: August 6, 2022
Abstract
Transparency is viewed as an essential prerequisite for consumers to make informed privacy decisions in digital markets. However, it remains an open research question whether and when individuals actually prefer transparency about privacy risks when given a chance to avoid it. We investigate this question with a randomized controlled online experiment based on an Ellsberg-type design, where subjects repeatedly choose between risk and ambiguity while facing the threat of an actual disclosure of their personal data. We find empirical support for ambiguity preferences as a novel behavioral mechanism underlying people's transparency choices in privacy contexts. In particular, we find that most individuals avoid ambiguity and prefer transparency for low likelihood privacy losses. However, this pattern reverses for high likelihood losses and when subjects perceive data disclosure as a gain. Most notably, a significant share of people seek ambiguity and thus prefer to avoid transparency when facing high likelihood privacy risks.
Keywords: privacy; transparency, privacy uncertainty, privacy risks, ambiguity attitudes, data losses, online experiment, GDPR
JEL Classification: D81, D12, C90
Suggested Citation: Suggested Citation