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The Strange Case of Privacy in Equilibrium Models

Published: 21 July 2016 Publication History

Abstract

We study how privacy technologies affect user and advertiser behavior in a simple economic model of targeted advertising. In our model, a consumer first decides whether or not to buy a good, and then an advertiser chooses an advertisement to show the consumer. The consumer's value for the good is correlated with her type, which determines which ad the advertiser would prefer to show to her---and hence, the advertiser would like to use information about the consumer's purchase decision to target the ad that he shows.
In our model, the advertiser is given only a differentially private signal about the consumer's behavior---which can range from no signal at all to a perfect signal, as we vary the differential privacy parameter. This allows us to study equilibrium behavior as a function of the level of privacy provided to the consumer. We show that this behavior can be highly counter-intuitive, and that the effect of adding privacy in equilibrium can be completely different from what we would expect if we ignored equilibrium incentives. Specifically, we show that increasing the level of privacy can actually increase the amount of information about the consumer's type contained in the signal the advertiser receives, lead to decreased utility for the consumer, and increased profit for the advertiser, and that generally these quantities can be non-monotonic and even discontinuous in the privacy level of the signal.

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    cover image ACM Conferences
    EC '16: Proceedings of the 2016 ACM Conference on Economics and Computation
    July 2016
    874 pages
    ISBN:9781450339360
    DOI:10.1145/2940716
    Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for third-party components of this work must be honored. For all other uses, contact the Owner/Author.

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    Association for Computing Machinery

    New York, NY, United States

    Publication History

    Published: 21 July 2016

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    Author Tags

    1. equilibrium models
    2. information in games
    3. privacy

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    EC '16
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    EC '16: ACM Conference on Economics and Computation
    July 24 - 28, 2016
    Maastricht, The Netherlands

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    EC '16 Paper Acceptance Rate 80 of 242 submissions, 33%;
    Overall Acceptance Rate 664 of 2,389 submissions, 28%

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