June 3, 2005
Most Americans who use the internet have little idea how vulnerable they are to abuse by online and offline marketers and how the information they provide can be used to exploit them, a new study by the University of Pennsylvania's Annenberg Public Policy Center shows.
For example, 64 percent do not know that it is perfectly legal for "an online store to charge different people different prices during the same time of day," a practice used by some companies that base their prices on what they know about a customer's buying habits. Similarly, 71 percent do not know that it is legal for an offline store to do this.
Large numbers (75%) said they believe that when a website has a privacy policy, that means the site will not share their information with other websites and companies, when in fact a privacy policy usually describes, in often murky language, how that information will be shared.
And there is widespread ignorance of what companies can do with the information they collect. Most people think that selling names and information by charities and supermarkets is impermissible -- or they say they don't if it is legal -- when in fact it is perfectly legal.
The study involved telephone interviews averaging 20 minutes with a national sample of 1,500 adults who said they had used the internet in the previous 30 days. Commenting on the findings, Professor Joseph Turow, Ph.D. said it was "startling to find that 65 percent of respondents said they know what I have to do to protect myself from being taken advantage of by sellers on the web. Judging by their scores on the factual questions in the survey, their self-confidence is mistaken."
"As society moves further into the twenty-first century, prices that vary based on firms' information about us could become an increasing feature of the marketplace. Consumers who are not aware of how price discrimination works, of what rights they hold when it comes to companies' using knowledge about them, and of how to respond to these circumstances may find themselves consistently paying more than others for the same products," Turow said.
"Database-driven price distinctions could spread as growing numbers of retailers use information consumers never knew they revealed to draw conclusions about their buying patterns that they would not have wanted."
The survey warns that most internet-using adult Americans will fall prey to marketplace manipulations even while many believe -- incorrectly -- that they know how to handle themselves. The report proposes three reforms to reduce that risk:
• First, the Federal Trade Commission should require websites to drop the label Privacy Policy and replace it with "Using Your Information." The new designation could go far toward reversing the broad public misconception that the mere presence of a privacy policy automatically means the firm will not share the person's information with other websites and companies.
• Second, U.S. school systems -- from elementary through high school -- must develop curricula that tightly integrate consumer education and media literacy. Paying new attention to these much-neglected subjects is critical if society is to succeed in preparing young people for the increasingly challenging twenty-first century marketplace.
• Third, the government should require retailers to disclose specifically what data they have collected about individual customers as well as when and how they use those data to influence interactions with them.
The survey posed 17 true-false questions about basic laws and practices of price discrimination and behavioral targeting and about where consumers can turn for help if their marketplace information is used illegally.
U.S. adults who used the internet in the past month were correct on an average of only 6.7 of them. Most did not know who is allowed to control information about them that can lead to price discrimination. Most were also incorrect in believing that the law protects them from secret forms of price discrimination offline and online. Beyond factual misunderstandings, the survey revealed that internet-using adults overwhelmingly object to behavioral targeting and price discrimination as ethically wrong.
The findings suggest that Americans' ignorance of key retail realities at a time of major marketplace changes leaves them open to economic abuse and emotional distress.
Americans' lack of knowledge can quite specifically lead to economic loss:
• 68% of American adults who have used the internet in the past month believe incorrectly that "a site such as Expedia or Orbitz that compares prices on different airlines must include the lowest airline prices."• 49% cannot detect illegal "phishing" -- the activity where crooks posing as banks send emails to consumers that ask them to click on a link wanting them to verify their account.
• 66% cannot correctly name even one of the three U.S. credit reporting agencies (Equifax, Experian, and TransUnion) that could keep them aware of their credit worthiness and whether someone is stealing their identity.
When presented with scenarios describing different types of behavioral targeting, fully 84% of internet-using adults believe that some websites analyze what people are reading, change the ads based on that reading, and even buy personal information about the readers from database companies. Almost all (89%) of those who say their supermarkets offer frequent shopper cards took the stores up on them -- and in doing it gave the stores personally identifiable information about themselves.
Yet most of the internet-using adults also seem to be unprepared for and unwilling to accept what retailers do with the information they get.
• 76% agree that "it would bother me to learn that other people pay less than I do for the same products."
• 64% agree that "it would bother me to learn that other people get better discount coupons than I do for the same products."
• 66% disagree that "it's OK with me if the supermarket I shop at keeps detailed records of my buying behavior."
• 87% disagree that "it's OK if an online store I use charges people different prices for the same products during the same hour."
• 72% disagree that "if a store I shop at frequently charges me lower prices than it charges other people because it wants to keep me as a customer more than it wants to keep them, that's OK."
Internet-using adult Americans do directly admit feeling vulnerable in this retail environment. Only 17% agree with the statement that "what companies know about me won't hurt me" (81% disagree), 70% disagree that "privacy policies are easy to understand," and 79% agree that "I am nervous about websites having information about me." Only about one out of three (35%) says he or she "trust(s) the U.S. government to protect consumers from marketers who misuse their information."
Of all characteristics in people's backgrounds, having more years of education is the best predictor of understanding basic realities about power to control information on them and the prices they pay in the online/offline marketplace. Yet even having more general schooling doesn't necessarily mean really knowing this world well.
People whose formal education ended with a high school diploma know correct answers to an average of 5.6 items out of a possible 17. People with a college degree do better -- 7.8 -- but that still means they get only 45% right. Even people with graduate school or more average 8.6 correct -- just 51% correct.
The survey was carried out by ICR/International Communication Research. The study was conducted by telephone from February 8 to March 14, 2005, among a nationally representative sample of 1,500 respondents who said they had used the internet within the past thirty days.
The full text of the study is available at www.annenbergpublicpolicycenter.org/.
