Topics in Information Economics: Deception, Damage, and Privacy

This research project will consist of two studies. The first study will investigate the relationship between deceptive practices and negative consequences. Public policy has a role in protecting consumers from false and misleading claims.

What constitutes deceptive behavior depends on the circumstances. The project will introduce different definitions of deception. In each case, it will identify when deception leads to a reduction in consumer well being.

The project will lead to a better understanding of the costs of deceptive behavior and inform policies that limit deceptive practices. The study will instruct policy makers to use the context – the characteristics of the decision problem – to determine which practices are deceptive and to identify which behavior should be classified as deceptive.

The second study will present a framework to study the feasibility of policies that safeguard individuals’ personal information and the welfare consequences of these policies. We now have the ability to collect, store, and analyze vast quantities of information about individual behavior. Consumers appear to be willing to provide information to these firms voluntarily, but there is widespread concern that they do not receive proper compensation for the information they provide.

The study will develop the idea that interdependence of information – the property that information provided by one person may reveal information about another – could explain why people may voluntarily disclose private information without compensation. The study will identify when it is impossible to protect private information and suggest ways in which to redistribute the benefits from sharing information when full privacy protection is not possible.

The study of damage and deception builds on standard models of strategic communication. A speaker deceives an audience if communication induces in- correct beliefs about the state of the world. A speaker damages an audience if these incorrect beliefs lead the audience to make suboptimal decisions.

Different definitions of incorrect beliefs will lead to different definitions of deception. For each definition, the research will characterize those preferences of the audience for which deception is damaging. The study of privacy will use the theory of mechanism design to determine whether a consumer will provide information to an information-collecting platform or opt out.

Agents who opt out do not provide information to the platform, but they cannot suppress information supplied by others. In this environment, there will be a distinction between mechanisms that preserve privacy in the sense that individuals control who can observe their personal information from mechanisms that induce full participation (no individuals opt out).

Mechanisms that induce full participation but do not preserve privacy are common. Studying these environments will inform policies that better compensate individuals who contribute information.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.