Dan Ariely is the author of Predictably Irrational: The Hidden Forces That Shape Our Decisions, James B. Duke Professor of Behavioral Economics at Duke University, and visiting professor at the MIT Media Lab. He will present a keynote at the IAPP Global Privacy Summit on April 20. In this Privacy Advisor Q&A, Dan discusses how his research applies to decisions we make about privacy.

Privacy Advisor: How did you come up with the theory behind Predictably Irrational, and what is it?

Dan Ariely: Since my early days as a patient in a burn department, I have been acutely aware that humans engage in actions and make decisions that are often divorced from rationality, and sometimes very far from ideal. Over the years I’ve tried to understand the silly, dumb, odd, amusing and, sometimes, dangerous mistakes we all make, in the hope that by understanding our irrational quirks, we can retrain ourselves to make better decisions.

We are all flawed and irrational in many predictable ways (we are emotional, myopic, vindictive, etc.). From this perspective, it is a bit depressing because it forces us to look in the mirror and acknowledge our irrationalities and propensity for mistakes. But more importantly, behavioral science also asks what assumptions we make about our behavior and the behavior of others, which of these assumptions are incorrect and how we can we use our understanding to a create a better environment for us to operate within. As a result, better economic recommendations could be made that would actually help real people with problems in the real world: retirement planning, determining the optimal amount to spend on a home, how much to spend on healthcare…

PA: How does your theory of predictable irrationality apply to our privacy choices?

DA: I think there are many cases in which people are not optimal in terms of privacy decisions. There are some cases where they care too much about it and others where they don’t care enough. It’s not a simple cost-benefit analysis. The standard theory is that we have some considerations and general strategies about when we should and shouldn’t care about our privacy. I think what we see is that people don’t care enough about privacy in terms of things like Facebook and when they talk to their physicians (medical physicians and hospitals can—and do—sell data on individuals.) On the other hand, people are concerned about what the grocery store knows about them based on loyalty programs. This maps into rationality because of the inconsistency with which we seem to care, and then not care, about our privacy.

PA: Has your research changed the way you make privacy-related decisions? If so, how?

DA: There is one area in which my research has made a small difference on my privacy decisions. It has little effect on me in terms of privacy with one exception: Research on conflict of interest that shows that good people, with good intentions, make bad decisions when they are faced with good incentives. I’ve started to care more about the information I share with doctors, financial advisors, etc. due to conflict of interest.

PA: Regulators worldwide are scrutinizing certain methods used by online advertisers to tailor ads to specific users. But the advertisers warn that too many restrictions on these efforts could threaten the foundation of the Internet economy (“free” content in exchange for some personal data). How does/will predictable irrationality come to play if and when the debate is pushed to a decision point?

DA: Advertising, like many things, is a double-edged sword. To the extent that advertisers give people information they’ll like and that they’ll find useful—it is fantastic. To the extent that advertisers figure out information that could help them discriminate against some people, it could be negative or viewed as negative.

I think that the real question for the people in the industry is how to focus on the part that has clear benefits. The risk is that people don’t often understand how other information could help. People feel bad about price discrimination but the good part of advertising is that people don’t often understand the value of information. If the information is given to create restrictions, then understandably, there is an emphasis on the bad side and not as much as on the good side. It’s important to recognize that it’s also part of the industry’s responsibility to build on the good side and not the bad side.