Luohan Academy

Privacy and Digital Demand Working Paper Posted to NBER

The Luohan Academy’s working paper, “The Data Privacy Paradox and Digital Demand” has been posted to the U.S.-based National Bureau of Economic Research database for circulation and comment from the NBER community of economists from worldwide. The authors of the working paper are Long Chen, Yadong Huang, Shumiao Ouyang, and Wei Xiong. 

In this undertaking, the authors examine how privacy preferences affect data-sharing behavior on one of the world’s largest payment and lifestyle platforms. Alipay has more than 900 million active users in China. In addition to providing a wide range of financial services, the platform also features 2 million sub-applications – called mini-programs – which enable third parties to offer services such as bike-sharing or food delivery. 

The Academy’s working paper examines how Alipay users interact with mini-programs and finds evidence supporting the privacy paradox, an observed phenomenon where people with stronger privacy concerns turn out to be no less willing to share their data. Employing user surveys and back-end data from the platform, this working paper represents an important empirical study on the so-called privacy paradox, and sheds light on the nature of data-privacy concerns. 

The authors find no relationship between privacy concerns, as measured by either survey responses or observed behaviors, and the number of times users authorized data sharing. They attribute this to the trade-off faced by users between privacy costs and the economic benefits to be gained through using the mini-program. Furthermore, the authors point to a curious finding that users with stronger privacy concerns also tend to use mini-programs more. The subjects in this group also tend to cancel previous authorizations more. Source: Chen et al. (2021)

This positive relationship between privacy concerns and digital demand further suggests that concerns about data privacy may not be innate. Instead, users may develop privacy concerns as a by-product of active digital interaction. To the extent that the economic benefits superseded consumers’ privacy concerns when they used the mini-programs within the sample, the analysis confirms that data sharing serves the interest of the consumer and is beneficial to their welfare. 

These findings are in line with the Academy’s flagship report, “Understanding Big Data: Data Calculus in the Digital Era”, published in February 2021. The report shows why data governance should protect both the free flow of data and privacy protection at the same time. 

Long Chen is Director of the Luohan Academy. Yadong Huang is an economist at the LHA. Shumiao Ouyang is a PhD candidate at Princeton University and a resident junior scholar at the LHA. Wei Xiong is Professor of Finance at Princeton University and a member of the LHA’s Academic Committee. 

 

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