by Mario Rizzo
Richard Thaler is one of those academics with an excess of nervous energy. He is constantly on the look-out for ways that he and his soft-paternalist sympathizers can tinker around improving our welfare, suitably defined.
The latest scheme is to force companies who have gathered data about product usage from particular individuals to share it with those individuals so that they can use it to improve their future purchases. Thus your cell phone company will reveal to you in convenient form everything it “knows” about “how much you use services like texting, social media, music streaming and sending photos.” (This, of course, is a kind of anthropomorphism because no human mind knows this stuff – it is all computerized!) Then you can use this information, with the help of other websites, to get your optimal phone plan.
Thaler argues, “After all, it is our data.” Dare I make a logical distinction between data about us and our data? This reminds me of the people who believe that when you take someone’s photograph you now own that person’s soul.
Thaler argues – how generous I am to use this word – “[Y]ou have lent the company your data and you’d like a copy for your own use.” I have lent them? Clearly, this is a metaphor of some kind. But it is worse than a simple metaphor. It is designed to claim, by linguistic suggestion, that consumers already have some innate property right to that information. However, if he believes that, then let him make an argument with reasons and maybe evidence.
He also says that shoppers who use a store’s club card to get discounts also should have access to this data. Thaler understands that people can opt out of the information gathering by not using the card, but then they do not get the discounts. Okay. Yet he then goes on to say inexplicably, “So let’s level the playing field. Why not give you, the consumer, something in return for participating? Require that the supermarket make your purchase history available to you.” I thought you already got something in return: the discounts!
Let’s get to the bottom line. Would compulsory sharing of data make the consumer better off? There is a simple, but important, principle in economics. It is this: When you force a seller to agree to terms of exchange which are costly he will change other terms in the relationship to compensate.
Thus, if compulsory sharing of information with consumers generates direct costs of data distribution and indirect costs of making it more likely that a consumer will go to a competitor, the price of the transacted good or service will have to be higher in order to continue as before. Furthermore, the regulation would reduce the value to the firm of producing and gathering information and thus less of it will be produced, making it harder to track the characteristics of consumers. Each of these effects reduces consumer wellbeing. The first is through higher prices; the second is through less finely-tuned product or service offerings.
Of course, competition will eliminate any “excess” profits companies might earn from withholding data and some companies already voluntarily share data with consumers. But the forces of competition reflect the preferences of consumers – and not Professor Thaler’s preferences.
I await Thaler’s next scheme.