Discussion Paper Details

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Title: Towards a Resolution of the Privacy Paradox

Author(s): Kristóf Madarász and Marek Pycia

Publication Date: January 2022


Programme Area(s): Industrial Organization and Organizational Economics

Abstract: We provide an explanation for the commonly observed privacy paradox. Suppose that the seller can invest in collecting information about the buyer's preferences and the buyer can counter-invest to decrease the precision of the seller's information thus protecting their privacy. In a large class of imperfect information dynamic games between the buyer, the seller, and privacy platforms, we show that the buyer chooses not to bear any direct costs to protect their information even though the leakage of this information affects the prices charged by the seller and hence affects buyer's payoff. Choosing between different privacy plat- forms, the buyer always chooses a cheapest platform irrespective of its and its alternatives' informational characteristics.

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Bibliographic Reference

Madarász, K and Pycia, M. 2022. 'Towards a Resolution of the Privacy Paradox'. London, Centre for Economic Policy Research.