Category: Web/Tech

The economics of privacy

Perhaps the biggest complaint about tech companies today is that they do not respect our privacy. They gather and store data on us, and in some cases, such as Facebook, they charge companies for the ability to send targeted ads to us. They induce us to self-reveal on the internet, often in ways that are more public than we might at first expect. Furthermore, tech data practices are not entirely appropriate, as for instance Facebook recently stored user passwords in an insecure, plain text format.

This entire debate is overblown, and the major tech companies are much less of a threat to our actual privacy than is typically assumed.

For most people, gossip from friends, relatives, colleagues, and acquaintances is a bigger privacy risk than is information garnered on-line. Gossip is an age-old problem, and still today many of the biggest privacy harms come through very traditional channels. And unlike false charges planted on social media, often there is no way to strike back against secretive whisperings behind one’s back. In the workplace, one employee may tell the boss that another employee does not work hard enough, or high school gossip may destroy reputations and torment loners and non-conformists, to give two common examples of many.

If anything, the niche worlds made possible by the internet, and yes by Facebook and Google, are giving many people refuges from those worlds of public scrutiny and mockery – you can more easily find the people who and like respect you for what you really are.

Life in small towns and rural areas is another major threat to privacy – too often everybody knows everybody else’s business. In contrast, if you live in a major city or suburban area, you have a much greater ability to choose whom you interact with, and you are more protected from the prying of your neighbors and relatives. And it seems that so far, contrary to some initial “death of distance” predictions, the internet has encouraged people to move to major urban centers such as New York and San Francisco. To that extent, internet life has boosted privacy rather than destroying it.

There’s also evidence that young Americans are having less sex these days and they are less likely to be in a serious relationship. The internet is likely one cause of that isolation, and in my view those changes are probably social negatives on the whole, and they represent a valid criticism of on-line life. But is the internet in this regard boosting privacy? Absolutely. The internet makes it much easier to be in less contact with other people, whether or not that is always wise or the best life course overall. It strikes me as odd when the same people blame the internet for both loneliness and privacy destruction.

A lot of actual privacy problems in the public arena don’t seem to attract much attention, unless they are tied into a critique of big tech. For instance, autocratic governments are using Interpol and its police powers and databases (NYT) to track down and apprehend ostensible criminals who are in fact sometimes merely domestic political dissidents. It is likely that many innocent individuals have ended up in jail (can the same be said from social media violations of privacy?) That’s an example of using databases for truly evil ends and, while it was covered by The New York Times (p.A10), it is hardly a major story.

It is striking to me how much the advocates focus on regulating the big tech companies, because a true pro-privacy movement might not have that as a priority at all.

By the way, how do you feel about obituaries?  The newspaper collects information on you for years, and then suddenly one day they publish it all and then keep it on the web, whether you like this or not.  They’ll even throw in snide remarks, sarcastic tone, or moral judgments about you, depending on the outlet of course.

If the privacy landscape is so complex, why then is there so much anger at Facebook and other social media companies? First, most users of services such as Facebook and Google are actually pretty happy with those services and with the companies. Some of the opposition is coming from intellectuals with core anti-business grudges, politicians looking to get headlines, or often from media itself, who face Google and Facebook as major and far more profitable competitors.

Second, social media themselves create contagion effects, whereby attention is piled on a relatively small number of select victims. For instance, the #MeToo campaign has focused condemnation on a small set of offenders, such as Harvey Weinstein, then magnified by Twitter and other social media. Many other offenders get off scot-free, simply because attention has not been directed their way. Ironically, one of the better arguments against social media is to look at how social media treat and discuss social media itself. On the privacy issue, Facebook rather than say Google has ended up as the main whipping boy, even though it might have gone the other way (who again controls your gmail?).  Ironically, perhaps the actual best argument about social media is how social media reflexively covers social media itself.

Third, many of the supposed concerns about privacy are perhaps questions of control. It is correct that the major tech companies do “funny things” with our data which we neither see nor understand nor control.This unsettles many people, even if it never means that some faux pas of yours is revealed in front of a party of your mocking friends. Still, I am not sure the underlying notion of “control” here has been satisfactorily defined. Many marketers, and not just on the internet, do things you do not control or even know about.  Furthermore, see Jim Harper on privacy, who covers security, seclusion, autonomy, and absence of objectification as some of the different features of privacy concerns.

Of course, just as privacy violations do not stem mainly from the big tech companies, we have never been in control of what is done with information and opinion about us, again think back on social gossip. This fundamental lack of control is just now being pushed in our faces in new and unexpected ways. In part it is actually unsettling, but in part we also are overreacting.

Privacy is a real issue, but to the extent it can be fixed, most of that needs to happen outside of the major tech companies.  Most of what is written about tech and privacy is simply steering us down the wrong track.

My Conversation with Russ Roberts

The podcast master himself, here is the audio and transcript, here is the opening summary:

What are the virtues of forgiveness? Are we subject to being manipulated by data? Why do people struggle with prayer? What really motivates us? How has the volunteer army system changed the incentives for war? These are just some of the questions that keep Russ Roberts going as he constantly analyzes the world and revisits his own biases through thirteen years of conversations on EconTalk.

Russ made his way to the Mercatus studio to talk with Tyler about these ideas and more. The pair examines where classical liberalism has gone wrong, if dropping out of college is overrated, and what people are missing from the Bible. Tyler questions Russ on Hayek, behavioral economics, and his favorite EconTalk conversation. Ever the host, Russ also throws in a couple questions to Tyler.

Here is one excerpt:

COWEN: Here’s a reader question. “In which areas are you more pro-regulation than the average American?” They mean government regulation.

ROBERTS: Than the average American?

COWEN: Yes.

ROBERTS: I can’t think of any. Can you help me out there, Tyler?

COWEN: Well, I’m not sure I know all of your views.

ROBERTS: What would you guess? Give me some things to think about there. In general, I think government should be smaller and regulations should be smaller.

COWEN: I’ll give you–

ROBERTS: Let me give you a trick answer. Then I’ll let you feed me some.

COWEN: Sure.

ROBERTS: Many people believe that the financial crisis was caused by deregulation. I think that’s a misreading of the evidence. It’s true that some pieces of the financial sector were deregulated, but government intervention in the financial sector was quite significant in advance of the crisis. In particular, the bailouts that we did of past failed financial institutions, I think, encouraged lenders to be more careless with how they lent their money, mainly to other institutions, not so much to people out in the world like you and me.

Deregulation’s a little bit tricky, so I wanted to get that in. I’m not sure how that pertains to the question. It does, probably, in some way. So give me something I should be more regulatory about.

COWEN: Well, one answer —

ROBERTS: Baseball? Baseball, of course. [laughs]

COWEN: I would say animal welfare — government should have a larger role. But also what counts as a tax-exempt institution, I would prefer our government be stricter.

ROBERTS: Well, I’m with you there. Yeah, okay, kind of.

COWEN: Well, that’s more regulation, okay?

ROBERTS: I guess.

COWEN: Kind of.

ROBERTS: Yeah, kind of. It’s different standards.

COWEN: Higher capital requirements for banks.

ROBERTS: I’m okay with that. Yeah, that’s a good one. I’d prefer a laissez-faire world for banks, more or less. If we can’t credibly promise not to bail out banks — if that’s the case, we live in a world where banks get to keep their profits and put their losses on taxpayers — bad world. A more regulated world would be better than the world we live in; not as good as my ideal world, though. But there’s a case where I would be in favor — like you just said — more capital requirements.

You’re on a roll. See what else you can come up with for me.

COWEN: Spending more money for tax enforcement, especially on the wealthy.

ROBERTS: Not the worst thing in the world.

COWEN: You can spend a dollar and bring in several times that, it seems.

ROBERTS: I don’t think rich people cheat on their taxes. Do you? [laughs]

COWEN: “Cheat” is a tricky word, but I think we could spend more money.

ROBERTS: We could probably collect more effectively.

COWEN: And it would more than pay for itself.

ROBERTS: Yeah. That’s probably true.

COWEN: We’re actually big fans of government regulation today.

ROBERTS: Yeah, we’ve really expanded the tent here. [laughs]

Do read or listen to the whole thing.

The dark side of the internet, in a nutshell?

As incentives to take higher actions increase—due to higher stakes or more manipulable signaling technology—more information is revealed about gaming ability, and less about natural actions. We explore a new externality: showing agents’ actions to additional observers can worsen information for existing observers. Applications to credit scoring, school testing, and web searching are discussed.

That is from a forthcoming JPE paper “Muddled Information,” by Alex Frankel and Navin Kartik.

Might Facebook boost wages?

From Luis Armona at Stanford:

In this paper, I estimate the causal effect of increased exposure to online social networks during college on future labor market outcomes.

Using quasi-random variation from Facebook’s entry to college campuses during its infancy, I exploit a natural experiment to determine the relationship between online social network access and future earnings.

I find a positive effect on wages from Facebook access during college. This positive effect is largest in magnitude for female students, and students from lower-middle class families.

I provide evidence that this positive effect from Facebook access comes through the channel of increased social ties to former classmates, which in turn leads to strengthened employment networks between college alumni.

My estimates imply that access to Facebook for 4 years of college causes a 2.7 percentile increase in a cohort’s average earnings, relative to the earnings of other individuals born in the same year. This translates to an average nominal wage increase of $3,000-$5,000 in 2014.

To be clear, some of that could be a wage distribution effect.  Still, this paper points to the possibility of some very real networking and matching gains from the use of Facebook, and perhaps those gains do not favor traditional elites.

For the pointer I thank the excellent Kevin Lewis.

Alec Stapp on GDPR

Here is just one segment of an excellent piece:

Compliance costs are astronomical

  • Prior to GDPR going into effect, it was estimated that total GDPR compliance costs for US firms with more than 500 employees “could reach $150 billion.” (Fortune)
  • Another estimate from the same time said 75,000 Data Protection Officers would need to be hired for compliance. (IAPP)
  • As of March 20, 2019, 1,129 US news sites are still unavailable in the EU due to GDPR. (Joseph O’Connor)
  • Microsoft had 1,600 engineers working on compliance. (Microsoft)
  • During a Senate hearing, Keith Enright, Google’s chief privacy officer, estimated that the company spent “hundreds of years of human time” to comply with the new privacy rules. (Quartz)
    • However, French authorities ultimately decided Google’s compliance efforts were insufficient: “France fines Google nearly $57 million for first major violation of new European privacy regime” (The Washington Post)
  • “About 220,000 name tags will be removed in Vienna by the end of [2018], the city’s housing authority said. Officials fear that they could otherwise be fined up to $23 million, or about $1,150 per name.” (The Washington Post)

And another part:

Unseen costs of foregone investment & research

  • Startups: One study estimated that venture capital invested in EU startups fell by as much as 50 percent due to GDPR implementation. (NBER)
  • Mergers and acquisitions: “55% of respondents said they had worked on deals that fell apart because of concerns about a target company’s data protection policies and compliance with GDPR” (WSJ)
  • Scientific research: “[B]iomedical researchers fear that the EU’s new General Data Protection Regulation (GDPR) will make it harder to share information across borders or outside their original research context.” (POLITICO)

Do read the whole thing.

Girardian sentences to ponder

We also find that stronger peer effects are exerted by more price-sensitive individuals. This positive correlation suggests that the elasticity of aggregate demand is substantially larger than the elasticity of individual demand. Through this channel, peer effects reduce firms’ markups and, in many models, contribute to higher consumer surplus and more efficient resource allocation.

That is from a new NBER working paper by Michael Bailey, Drew M. Johnston, Theresa Kuchler, Johannes Stroebel, and Arlene Wong.

Maciej Cegłowski on gdpr

The plain language of the GDPR is so plainly at odds with the business model of surveillance advertising that contorting the real-time ad brokerages into something resembling compliance has required acrobatics that have left essentially everybody unhappy.

The leading ad networks in the European Union have chosen to respond to the GDPR by stitching together a sort of Frankenstein’s monster of consent,a mechanism whereby a user wishing to visit, say, a weather forecast page 4 is first prompted to agree to share data with a consortium of 119 entities, including the aptly named “A Million Ads”network. The user can scroll through this list of intermediaries one by one, or give or withhold consent en bloc, but either way she must wait a further two minutes for the consent collection process to terminate before she is allowed to find out whether or it is going to rain.

This majestically baroque consent mechanism also hinders Europeans from using the privacy preserving features built into their web browsers, or from turning off invasive tracking technologies like third-party cookies,since the mechanism depends on their being present.

For the average EU citizen,therefore, the immediate effect of the GDPR has been to add friction to their internet browsing experience along the lines of the infamous 2011 EU Privacy Directive (“EU cookie law”) that added consent dialogs to nearly every site on the internet.

The GDPR roll out has also demonstrated to what extent the European ad market depends on Google, who has assumed the role of de facto technical regulatory authority due to its overwhelming market share. Google waited until the night before the regulation went into effect to announce its intentions, leaving ad networks scrambling.

It is significant that Google and Facebook also took advantage of the US-EU privacy shield to move 1.5billion non-EU user records out of EU jurisdiction to servers in the United States. Overall, the GDPR has significantly strengthened Facebook and Google at the expense of smaller players in the surveillance economy.

The data protection provisions of the GDPR, particularly the right to erase, imposed significant compliance costs on internet companies. In some cases,these compliance costs just show the legislation working as intended. Companies who were not keeping adequate track of personal data were forced to retrofit costly controls, and that date is now safer for it.

But in other cases, companies with a strong commitment to privacy also found themselves expending significant resources on retooling. Personally identifying information has a way of seeping into odd corners of computer systems (for example, users will sometimes accidentally paste their password into a search box), and tracking down all of these special cases can be challenging in a complex system.The requirements around erasure, particularly as they interact with backups, also impose a special burden, as most computer systems are designed with a bias to never losing data,rather than making it easy to expunge.

Here is the full Senate testimony, there are many interesting points in the piece.  I thank an MR reader for the pointer.

The internet gang deconversion culture that is Brazil

As gang wars drive Brazil’s homicide rate to historic highs, evangelical pastors — long revered in the nation’s slums and prisons — have come up with a new way to protect members looking for a way out.

Gang leaders say the only way to leave the business alive is to convert to Christianity. So Barros, a televangelist popular here in western Brazil, memorializes a gang member’s embrace of the ancient articles of faith using the most modern of tools: He records the conversion on his smartphone and posts the videos on YouTube, Facebook and WhatsApp. The converts gain immunity against retribution by rival gangs and their own.

Gang leaders and law enforcement officials say it works.

“We aren’t going to go against the will of God,” a local leader of the powerful Comando Vermelho, the gang that was pursuing Viera, told The Washington Post. “God comes first, above everything.”

And there is an enforcement mechanism:

When his attackers saw it [the deconversion video], they dropped their pursuit. But they monitored him for months, checking to see if he was going to church or had contact with his former leaders.

“If I do anything wrong, they will kill me,” Cunha said. “I have to take the video seriously. They don’t tolerate regressions.”

Here is more from Marina Lopes at The Washington Post, interesting throughout.

Average is Over, installment #437

Taking logs of computer activity, or even screenshots, and running them through big data analytics programs allows these firms to create detailed reports for executives about productivity, they claim. How employers use the data, they add, is up to them.

According to Gartner, more than half of companies with over $750m in annual sales used “non-traditional” monitoring techniques on staff in 2018, while the workforce analytics industry will be worth nearly $2bn by 2025, according to San Francisco’s Grand Review Research.

Products developed by companies such as Activtrak, which raised $20m in a series A funding round in March 2019, allow employers to track which websites staff visit, how long they spend on sites deemed “unproductive” and set alarms triggered by content considered dangerous.

And:

If combined with personal details, such as someone’s age and sex, the data could allow employers to develop a nuanced picture of ideal employees, choose whom they considered most useful and help with promotion and firing decisions.

Here is more from Camilla Hodgson at the FT.

The company that is Amazon

Let’s pause to reflect that the company that has made one-day shipping of tens of millions of items the industry standard is also the global leader in cloud computing services, owns the Whole Foods grocery stores (and is building a second chain), helps police departments identify criminals, is building its own air cargo fleet, has an $11 billion-a-year advertising business, is working on a plan to give everyone on Earth internet from space, has put always-on microphones in at least 1 in 10 U.S. homes, built an Oscar-winning film and TV studio from scratch, and is competing directly with UPS, FedExGoogle, FacebookAppleMicrosoftIBMthe entire book-publishing industryNetflix, HBO, DisneyWalmartTarget, CostcoKrogerCVS, Walgreens and countless startups.

I don’t like Alexa, and wouldn’t take one for free!  Still, this is overall a remarkable record of both innovation and competition across many markets.  That said, I wonder for how long Amazon can keep this up without becoming a bloated, inefficient conglomerate.

Here is more from Christopher Mims at the WSJ.  You will note also that Walmart is several times larger in U.S. retail than is Amazon.

Are social media really bad for your children?

Maybe not:

To disentangle between-person associations from within-person effects, we analyzed an eight-wave, large-scale, and nationally representative panel dataset (Understanding Society, the UK Household Longitudinal Study, 2009–2016) using random-intercept cross-lagged panel models (2). We adopted a specification curve analysis framework (35)—a computational method which minimizes the risk that a specific profile of analytical decisions yields false-positive results. In place of a single model, we tested a wide range of theoretically grounded analysis options [data is available on the UK data service (6); code is available on the Open Science Framework (7)]…

We first examined between-person associations (Fig. 1Left), addressing the question Do adolescents using more social media show different levels of life satisfaction compared with adolescents using less? Across all operationalizations, the median cross-sectional correlation was negative (ψ = −0.13), an effect judged as small by behavioral scientists (8). Next, we examined the within-person effects of social media use on life satisfaction (Fig. 1Center) and of life satisfaction on social media use (Fig. 1Right), asking the questions Does an adolescent using social media more than they do on average drive subsequent changes in life satisfaction? and To what extent is the relation reciprocal? Both median longitudinal effects were trivial in size (social media predicting life satisfaction, β = −0.05; life satisfaction predicting social media use, β = −0.02).

The effects which are observed are larger for females:

For females, however, social media was a predictor of slightly decreased life satisfaction across all domains, except satisfaction with appearance (b = −0.13 to −0.05 or β = −0.09 to −0.04; Fig. 2Center). Furthermore, all domains of life satisfaction, except satisfaction with friends, predicted slightly reduced social media use (b = −0.17 to −0.05 or β = −0.11 to −0.07; Fig. 2Right).

Here is the full (short) paper by Amy OrbenTobias Dienlin, and Andrew K. Przybylski.

We’re a Niche, We Just Didn’t Know

That is the new Medium essay by Anna Gát, it is the best attempt I know of to formulate a “new ideology” of sorts, or maybe a new manifesto, but also a post-political one.  Here are a few scattered bits:

Let’s imagine the I.I. [Inter-Intellect] as a loose-knit on/offline niche of people with similar mental energy: we seem to have roughly the same companion + kindness + information needs, activity levels and communication preferences…

We seem to prioritize open discussion and collaboration across differences, and establishing projects that can address real-world questions better…

We believe individuals are capable of acting virtuously without external intervention and judging the consequences of their own actions, and that open discussion of our life plans, decisions or progress can inspire others.

“Example over slogans” is the tldr…

Being conscious of this, the I.I. is age-agnostic and instead problem/progress focused.

Interesting throughout.

Roissy has been deplatformed

Or so I hear, and Google doesn’t bring it up either, not even the shut down version.

I worry about deplatforming much less than many of you do.  I remember the “good old days,” when even an anodyne blog such as Marginal Revolution, had it existed, had no platform whatsoever.  All of a sudden millions of new niches were available, and many of us moved into those spaces.

In recent times, a number of the major tech companies have dumped some contributors, due to a mix of customer and employee protest.  So we have gained say 99 instead of say 100, and of course I am personally happy to see many of the deplatformed sites go, or move to other carriers.  Most of the deplatformed sites, of course, I am not familiar with at all, but that is endogenous.  I would say don’t overreact to the endowment effect of having, for a while, felt one had literally everything.  You never did.  You still have way, way more than you did in the recent past.

You might be worried that, because of deplatforming, the remaining sites and writers and YouTube posters have to “walk the line” more than ideally would be the case.  That to me is a genuine concern, but still let’s be comparative.  Did you ever try to crack the New York publishing scene in the 1990s, or submit an Op-Ed to the New York Times before the internet was “a thing”?  Now that was deplatforming, and most of it was due to the size of the slush pile rather than to evil intentions, though undoubtedly there was bias in both settings.

Another “deplatforming” came with the shift to mobile, which vastly favored some websites (e.g., Facebook) over many of the more idiosyncratic competitors, including many blogs (MR has done just fine, I should add).

Developments such as VR, AR, 5G — or whatever — will reshuffle the deck further yet.  There will be big winners, many of which are not yet on the scene, and some considerable carnage on the downside.  Maybe you won’t be forced off, but many of you will find it worthwhile to quit rather than adapt.

There still has never, ever been a better time to be a writer.  What bugs people about deplatforming is the explicitness and potential unfairness of the decision.  It’s like prom selection time, where there is no escaping the fact that the observed choices, at least once they get past the algorithms and are reviewed by the companies, reflect very conscious decisions to bestow and to take away.  We have painful intuitions about such rank orderings…still, we are better served by the objective facts about today’s diversity and opportunity compared to that of the past.

I thank a loyal MR reader for the initial pointer.