The “free” goods companies offer for private data usually include sought-after search results, music or video streams, access to social media, or some other type of informational good. Do these market exchanges reflect the true valuations of consumers’ private data? To find out, Researchers Geoff Tomaino, Klaus Wertenbroch and Daniel J. Walters conducted several experiments to determine if consumers value their private data the same when exchanged for money as when exchanged for the aforementioned goods.

Findings suggest that companies may not be compensating consumers adequately for their data and that the ubiquitous markets for privacy may not function efficiently.

Subjects in each experiment were asked to make three judgment calls:

1. How much money would they demand in exchange for a certain amount of their private data (privacy to money)?
2. How many units of a “good” would they demand for the same amount of data (privacy to goods)?
3. How much money would participants be interested in receiving instead of the above-mentioned number of goods (goods to money)?

Researchers were sure to include only goods which could be counted. That way, participants could easily comprehend the value of their private data in terms of the number of units of a certain good. Respondents were also able to choose the type of good they wanted to receive from a list of eight separate ones, in order to ensure that their responses were realistic. Participants valued their private data more when the medium of exchange was money over goods, the results of numerous experiments within the study demonstrated.

A final one demonstrated that the intransitivity of valuations occurs more often when participants are asked to exchange a resource with uncertain value (private data) versus a resource with well-defined value (labor) that they are used to quantifying in terms of money.

Read the full working paper here.