Privacy Can Arise Endogenously in an Economic System with Learning Agents

Core Concepts

Privacy can arise naturally as an equilibrium strategy in price discrimination games between buyers and a seller, even without explicit privacy mechanisms.

Abstract

The paper studies price-discrimination games between buyers and a seller, where privacy can arise endogenously as a result of utility maximization.

Key insights:

• In the one-shot game, buyers with high valuations have an incentive to misrepresent their type to avoid price discrimination, leading to a "buyer-induced privacy" equilibrium.
• If the seller can commit to a certain level of privacy, the optimal response is to commit to ignoring buyers' signals with some probability, leading to "seller-induced privacy".
• In a repeated interaction setting where the seller cannot commit, seller-induced privacy can still arise as a result of reputation building, depending on the seller's learning algorithm.
• The paper shows that no-regret learning by the seller does not guarantee seller-induced privacy, while no-policy-regret learning does lead to the highest possible seller utility, which is achieved by the commitment strategy.

Stats

The probability of a type-θ buyer is denoted by μ.
The probability that the seller is signal-aware (can observe buyer signals) is denoted by α.
The cost of evasion (misrepresenting one's type) for the buyer is denoted by cB, and the cost for the seller is denoted by cS.
The valuations of the two buyer types are denoted by θ and θ, where θ < θ.

Quotes

"We study price-discrimination games between buyers and a seller where privacy arises endogenously—that is, utility maximization yields equilibrium strategies where privacy occurs naturally."
"We find that, even without commitment ability, seller-induced privacy arises as a result of reputation building."

Key Insights Distilled From

Privacy Can Arise Endogenously in an Economic System with Learning Agents

by Nivasini Ana... at arxiv.org 04-17-2024

https://arxiv.org/pdf/2404.10767.pdf

Deeper Inquiries

How would the results change if the seller could dynamically adjust their commitment to privacy over time, rather than maintaining a fixed level

If the seller could dynamically adjust their commitment to privacy over time, the results of the game would likely change. With dynamic adjustment, the seller could respond to changing conditions and feedback from the buyers. This flexibility could lead to a more nuanced approach to privacy, allowing the seller to adapt their level of privacy commitment based on the evolving dynamics of the interactions.
For example, the seller could increase their commitment to privacy in response to feedback from buyers or external factors that indicate a need for stronger privacy protections. Conversely, the seller could relax their privacy commitment if they observe that buyers are not responding positively to high levels of privacy. This dynamic adjustment could lead to a more efficient and effective balance between privacy protection and revenue maximization for the seller.

What are the implications of this work for the design of privacy-preserving platforms and policies in real-world settings

The implications of this work for the design of privacy-preserving platforms and policies in real-world settings are significant. By providing a game-theoretic model that demonstrates how privacy can arise endogenously in economic systems, this research offers valuable insights for designing privacy-preserving mechanisms in various contexts.
One key implication is the importance of considering the incentives and behaviors of all stakeholders when designing privacy mechanisms. Understanding how buyers and sellers interact in a price-discrimination game can help platform designers and policymakers create more effective privacy policies that align with the interests of all parties involved.
Additionally, the findings from this research highlight the potential benefits of incorporating reputation-building mechanisms and learning algorithms into privacy-preserving platforms. By leveraging these tools, platforms can encourage privacy-preserving behaviors among users and create a more trustworthy and transparent environment for data sharing and transactions.
Overall, this work underscores the importance of taking a holistic and strategic approach to privacy design, considering not only technical aspects but also the economic and behavioral incentives at play in privacy-related interactions.

How might the insights from this game-theoretic model inform the development of new theoretical frameworks for understanding privacy in the context of machine learning and data-driven decision making

The insights from this game-theoretic model can inform the development of new theoretical frameworks for understanding privacy in the context of machine learning and data-driven decision making. By demonstrating how privacy can emerge endogenously in economic systems with learning agents, this research sheds light on the complex interplay between privacy, incentives, and strategic behavior.
One potential application of these insights is in the development of privacy-preserving machine learning algorithms. By incorporating mechanisms that encourage privacy-preserving behaviors among agents, such as randomized response or commitment strategies, machine learning systems can enhance privacy protections while maintaining performance and utility.
Furthermore, the framework presented in this research can serve as a foundation for studying privacy in other domains, such as online platforms, social networks, and digital marketplaces. By adapting the game-theoretic model to different contexts, researchers and practitioners can gain a deeper understanding of how privacy considerations influence decision-making and interactions in various settings.
Overall, the insights from this model have the potential to advance the field of privacy research and contribute to the development of more robust and effective privacy frameworks in the era of big data and machine learning.