Consumers must recognise the economic value of their personal data and make informed decisions about how it is used, say the authors of a new study
Technology platforms often present their services as “free.” However, users are actually accessing these platforms’ content in exchange for a valuable asset: their private data. With consumers ubiquitously giving up data around their identities, preferences, and activities for this access, a fundamental question arises of whether consumers are being adequately compensated.
Our recent research at INSEAD – published in the Journal of Marketing Research – finds that consumers may not be demanding enough in exchange for their data. We find that they demand more value for their data when exchanging them for cash versus goods. Since the data market is largely goods-oriented
(e.g., exchanging product preference information for access to a social media site), this means that consumers may be demanding less than they otherwise would in a more traditional, cash-oriented market.
In our main experiment, we used a simple task to measure participants’ valuations of their private data. Specifically, we told them we were interested in buying three hours of their GPS data. We then asked them to tell us which from a list of goods they would be most interested in receiving, such as Starbucks beverages or Kindle eBooks. In one task, participants told us how many units of their chosen good we would need to give them in order for them to give up their data (e.g., 12 Kindle eBooks). We then had them indicate how much cash was as valuable to them as this bundle of goods (e.g.,12 Kindle eBooks being as valuable as $37). We additionally had participants place a direct cash value on their data (e.g., $57).
We compared their direct cash valuation of their data, to the value they placed on the bundle of goods at which they would exchange their data. We found that the direct cash valuation was higher. This means that participants were placing a greater value on their data when exchanging them for cash, as opposed to goods.
Furthermore, we found that this difference is robust across different types of data. We asked participants to perform the same task for one of a variety of types of data, such as a list of the songs they had recently listened to or even a sample of their saliva, and saw them generally still valuing their private data more in cash than in goods.
Why private data is special
We conducted a similar test of valuations in cash and in goods for another asset consumers frequently sell: their labour. Specifically, we asked participants to tell us how much we would have to compensate them with in cash and goods in order to have them classify images for us (e.g., identifying fruits from a series of pictures) for three hours. When participants valued their labour, we did not see the same differences in cash and goods valuations as we did for private data.
We predict that this is because consumers are uncertain about how to value their data. Most jobs come with commonly known wage bands, which labourers can refer to in setting their prices. By contrast, consumers are not used to valuing their data, making them unsure of how much they should demand in exchange for them. This was clear in our experiments, with the amounts varying from $1 to hundreds of dollars for the same data across participants.
Since consumers are uncertain of the value they should place on their data, we found that they relied on the exchange medium they were using when constructing their values. We saw that the cash scale made participants think more about what their data is worth, likely because cash is more commonly used to assess value than goods, explaining why they valued their data more in cash than in goods.
How to protect consumers
In another study, we told participants what others were charging for their data. This acted as a reference price for participants, reducing their uncertainty of how to value their data. We found that reducing their uncertainty this way helped reduce the gap in cash and goods valuations for their data. This points to a route in ensuring that consumers are adequately compensated for their data: making it known what data are actually worth in the market and helping consumers form reference prices around which they can construct their own data valuations.
More generally, our research highlights the need for greater market transparency for private data and underscores the importance of protecting consumer welfare. Consumers must recognise the economic value of their personal data and make informed decisions about how it is used and exchanged. Put differently, we are not suggesting that the data market shift its orientation to one of cash, as opposed to goods. Rather, our research shows that facilitating consumers’ awareness of the value of their data will help them be more consistent in their valuations and more likely to be adequately compensated.
The authors of the research are Prof. Geoff Tomaino, Prof. Klaus Wertenbroch and Prof. Daniel Walters of INSEAD.