Lecture 3 Flashcards
(23 cards)
How is the value of privacy linked to the value of information?
Privacy concerns the right to withhold private information, which inherently affects how valuable information is, especially in economic contexts.
What are the two main views of privacy discussed?
1) Privacy as protection from public information or asymmetric information reversal, 2) Privacy as restricting information exchange between parties.
What do Stigler (1980) and Posner (1981) argue about privacy?
They argue that privacy leads to inefficiencies due to concealment of information causing mismatches, misallocations, and fraud.
Give examples of economic inefficiencies caused by privacy according to Posner.
Job mismatches due to hidden personal traits, hidden product flaws, extended courtship in marriage, and private credit scores.
What is a key assumption in Posner’s analysis of privacy?
That the market aggregates information optimally and gives appropriate weight to it.
What limitation of this assumption has later research shown?
That agents may not ignore irrelevant characteristics, and reputational concerns may cause socially suboptimal outcomes.
What is the impact of identity privacy on cooperation according to Friedman and Resnick (2001)?
Private identities reduce trust and cooperation because they hinder punishment and reputation mechanisms in repeated games.
What is the equilibrium outcome of a finitely repeated prisoner’s dilemma?
Mutual defection.
How does anonymity influence social trust?
It reduces accountability and deters cooperation, weakening social trust and capital.
Why is the correction of asymmetric information not always efficient?
Because signals can be costly and sometimes reduce total surplus, depending on whether they correct inefficiencies or merely redistribute outcomes.
How does Spence’s model view education?
As a costly signal of productivity where higher productivity makes education less costly.
Why might separating equilibria be Pareto inefficient in Spence’s model?
Because everyone might be worse off due to the cost of signaling outweighing its benefits.
In the adapted grades example, when are private grades better?
If the utility with private grades (0.5) is higher than with public grades (maximum 1 - 2/3 = 1/3), then private grades are Pareto dominant.
What problem does Akerlof’s (1970) model address?
Adverse selection in markets with quality uncertainty, like used cars.
How does certification solve problems in Akerlof’s model?
It makes product quality observable, preventing market unraveling.
When might certification be socially suboptimal?
When the market does not unravel without it, as it imposes unnecessary costs.
What is Hirshleifer’s (1971) view on private vs. social value of information?
Private value may exceed social value in zero-sum settings because information redistributes but does not increase total surplus.
How does the example of grades show the private/social value gap?
Employers privately value seeing grades early, but socially it adds no surplus if all see them later anyway.
Name three reasons why private and social value of information may differ.
1) Non-strategic externalities, 2) Strategic interactions, 3) Measurability of privacy effects.
Why is health data an example of underprovided information?
Because it has positive externalities and public good characteristics but low private incentive to share.
What makes the value of privacy difficult to measure?
It includes tangible (e.g. wages), intangible (e.g. discomfort), and incommensurable (e.g. surveillance threat) factors.
What does the lecture conclude about the value of information?
Its value is context-dependent; it can create inefficiencies or resolve them and its private value often diverges from social value.
How can consumer preferences complicate the privacy debate?
Consumers might want more data shared for better deals but less data shared about their willingness to pay.
