Game Theory and Online Privacy
http://thenextweb.com/insider/2011/09/13/do-we-really-care-about-our-online-privacy/
This article examines how people share large amounts of information online seemingly without regard to the privacy they are giving up. The author asserts, “you would think that people would be concerned about ensuring that information doesn’t fall into the wrong hands, or that it can’t be used or exploited for advertising purpose. The reality, however, is very different”. The reason people act in a way that appears unexpected is easily explained by game theory. Game theory applies to this situation because each person’s satisfaction depends on both his or her decisions as well as the decisions made by everyone else.
The article points out that “the majority of people online simply don’t care about their privacy, as long as they’re getting what they want in return”. Although they are making a choice that includes a negative payoff (loss of privacy), in return they are gaining information and networking connections, both of which are positive payoffs.
The choice people have to make can be modeled by a simple game. The payoff for sharing information depends on how many other people are sharing information. For example, Facebook is interesting only because other people are on it. It can be modeled as x-C, where C is the constant representing the value of the loss of privacy a person experiences from sharing information, and x is the number of people already sharing information. The payoff for not sharing information also depends on how many people are also sharing. For example, being “out of the loop” is a negative effect that is worsened when more people are informed and connected. This payoff can be modeled as –x+C (the +C comes from having more privacy when not sharing).
Initially, when x<C, the best response is to not share information. As the number of people who share information grows to be larger than C, joining and sharing information becomes a best response. According to the article, “it would seem that this need to share has trumped anything else, including our privacy”. The way people act in real life, for existing networks like Facebook or Twitter, exemplifies the second situation, where x is greater than C. Hence, those networks continue to grow and gain information from users. Once game theory is used to examine behavior, it is no longer surprising that people continue to give up their privacy in exchange for the ability to connect to others online.