It’s a bargain… or is it?

We are happily handing over large amounts of private data to internet giants. How come? And does it matter?

Our lives are, in a way, an endless string of trades. Have a look at your latest current account or credit card statement. Barely a day goes past when you don’t wave our contactless card in front of a reader, or enter its digits into a web form. Add to that the numerous direct debits for utilities and subscriptions as well as still plenty of cash transactions. And of course there is the source of all that money for many of us: the income we get in exchange for our labour. Humankind is clearly of the trading kind.

One reason we do this in such a matter-of-fact way, almost carefree, is that we generally feel well protected in doing so. When we hand over money, whether that is for groceries or for a car, there are laws that safeguard our rights and ensure the goods supplied are fit for purpose. Additional measures shield us in situations where there is a risk of abuse or confusion (e.g. distance selling) or with more complex services like insurance. There are cooling-off periods in which we can change our minds free of charge, and ombudsmen to complain to when we have a problematic transaction. And if our employer is cheating us, we can go to an employment tribunal.

Moneyless trading

But we also trade without money. Perhaps you are in a car-sharing arrangement with a colleague for your commute: today you drive, tomorrow it’s their turn etc. Even if no money changes hands, it’s still an economic transaction. We water the neighbours’ plants when they’re on holiday (or they water ours), we lend out our ladder or borrow a friend’s car battery charger.

Behind such trades is the notion of reciprocity, one of the oldest and most prominent motivational factors in social interaction. We do something for someone else, in the expectation that they will return the favour at some later point. We experience this even when we don’t interact directly with people we know. Internet forums like Mumsnet, or those catering for people suffering with medical conditions or psychological distress are full of users more than willing to support others without any financial compensation. Youtube bulges with videos uploaded by selfless individuals showing how to change a washer in a tap, or replace the brake pads of a classic car.

No need for a safety net of guarantees, trading standards or tribunals here. What is at stake in social networks like this are things like friendship, reputation and status, and that seems to be enough to keep the intense economy of social trades going.

But the internet has also brought a new kind of trade. We could call these unconscious trades: we are not immediately aware that we are exchanging something for what we get. I am, of course, referring to the ‘free’ services from the likes of Google, Facebook and Twitter. But of course, as the old saying goes, there is no such thing as a free lunch – certainly not when it concerns giant companies. Or as Andy Lewis tweeted

Generous with data

Much has been written about the fact that we freely supply these companies with all manner of personal information. Our date of birth, the school we went to, our relationship status, but also where we are (how else do you think Google Maps can tell us how quickly the traffic flows in our street?), what websites we’ve visited (mmm… cookies!) or the contents of our emails.

How come we are so generous with our data?

gmaps

My street is busy. But how does Google know that?

One explanation is that we don’t even realize how valuable our personal information is. In the real world, that would be akin to someone giving away an old, tatty painting, not realizing it is actually an old master, worth millions. Now, our individual data may not be worth that much, but when you look at Google’s or Facebook’s revenue from advertising, you see it’s not peanuts either. The ability to tailor ads to us, the user, that they offer is exceptionally valuable to advertisers. AVG, an antivirus company, used to offer a browser extension that monitored your usage and settings for Facebook and Google, and estimated how valuable you were to them. In a 2014 AdAge article, a journalist reports she was worth $20.75 each year to Facebook, and no less than $223 to Google.

Does that mean we are being abused as consumers, in a way that, in the real world, would have trading standards up in arms?

A fair bargain?

There are two parts to the answer. The first one is concerned with the bargain itself – are we getting ‘value for money’ from the trade (even though we don’t pay anything)? Hal Varian, Google’s Chief Economist worked out, in a presentation on the Economic Impact of Google, that the consumer surplus per user of Google’s search facilities is of the order of $500 per year. He is quite upfront about the fact that it is a back of the envelope calculation, but that is not an insignificant user benefit.

But perhaps you should ask yourself: how much would you need to be paid to give up Google (or Facebook, or Twitter etc.)? That will give you an idea of what these services are worth to you. Then you should ask yourself, would you ‘sell’ your private information for that amount?

The other part is more tricky. Is a trade, in which we don’t really realize what we are ‘paying’, a fair one? Imagine I offer you, say, a ‘free’ tablet computer, but unbeknownst to you, I extricate £100 from your pocket. That may be an excellent price for the device you received, but if you are not aware that you’re actually paying for it, it’s difficult to maintain the transaction itself is fair.

Arguably, the same applies in our relationship with the internet giants. Of course, we have all clicked the button to say we have agreed with their general terms and conditions, and their rights to use the information we supply as described. Some even go so far as to require that you scroll down all the way to indicate that you have read all sixty-odd pages. But even if the exchange is fair from a market viewpoint, that is perhaps not enough to deny they are exploiting our attraction to what is free to lure us into divulging our private information for their own lucrative aims.

Are we getting a good and fair bargain from Google, Facebook and co? To answer that question we need to consciously consider the trading relationships we have with them. But few of us do that, and so we really have no idea.

Advertisements

About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Economics, Ethics and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s