Have you ever received a notice that your data privacy has been breached? What the heck does that mean anyway? Most of the time what it means is that some piece of information that you wouldn’t normally disclose to others, like a credit card or your social security number, has been released unintentionally, and perhaps maliciously (e.g., stolen). About five years ago states began passing data breach privacy laws that required authorized possessors of such information to report to victims when a breach occurred. There were basically two goals for such laws:
- Provide individuals warning that they may have suffered identity theft, so that they can take some steps to prevent it, like blocking a credit card or monitoring their credit reports; and
- Provide a more general deterrent by embarrassing companies into behaving better. “Sunlight as a disinfectant,” as Justice Brandeis wrote.
A study conducted by Sasha Romanosky, Rahul Telang, and Alessandro Acquisti at CMU found that as of yet there can be no correlation found between these laws and identity theft rates. This could be for many reasons why the correlation isn’t there. First, actual usage of the stolen information seems to be only a small percentage. Second, it may be that just because a light has been shined doesn’t mean that there is anything the consumer will be capable or willing to do. For instance, suppose you buy something at your-local-favorite-website.com. They use a credit card or billing aggregation service that has its data stolen, and so that service reports to you that your data has been stolen. You might not even understand what that service has to do with you. Even if you do, what are the chances that you would be willing to not use your-local-favorite-website.com again? And if you hear about such a break-in from someone else, would it matter to you? Economists call that last one rational ignorance. In other words, hear no evil, see no evil.
Add to all of this that some people have said that there are huge loopholes in some of the laws. At WEIS and elsewhere several not-so-innovative approaches were discussed about how some firms are getting around the need to disclose.
This paper is not the final word on the subject, but clearly work needs to be done to improve these laws so that they have more impact. As longitudinal studies go, this one isn’t very long. It’s possible we’ll see benefits further down the road.
 The Brandeis quote could be found in the paper I cited (which is why I used it).