I listened to a podcast about personal data, and how there is a huge information asymmetry between individuals and companies. There are many attempts to create marketplaces for personal data, and different models of how individuals could earn from their data. At the same time, most attempts to create a perfect market fail. The reality is that each party in the market targets to maximize its own information and how to utilize it best. It will be the same with personal data, too.
We know perfect information is more a theoretical model. Some markets, e.g. stock markets, try to guarantee useful information to all parties and prevent special access to information (e.g. insider trading). But in most cases, we just try to have enough information. If you go to a supermarket, you don’t have complete information about the pricing of products. Depending on the value of your purchase, you probably run some quick numbers to clarify the market price.
The history of the Internet is full of stories about companies that have wanted to create effective marketplaces for all kinds of needs, from startup investments to different items, apps and information. We are likely to hold idealistic, perfect-market illusions of the platform economy, where only the market’s invisible hand is needed, just as Adam Smith described the pure, free market.
Often some parties have more information, or there is a party that controls and regulates the market. I doubt Amazon, hotel booking sites, or startup investing platforms offer perfect information to consumers, and they most probably know more than the consumer about the items they sell. Most markets also need market makers that push deals to happen or to guarantee activity.
At the same time, some people and startups talk about a perfect market for personal data. This idea raises many complex questions. Firstly, does it really make sense to sell your data? Secondly, how do you achieve a perfect market to price that data? Thirdly, would there be a secondary market for personal data and who would control that? No need to continue this list, as those questions are already tough enough to answer.
So, now we have asymmetry of personal data between companies and people. But who knows most? Amazon, Netflix, Apple and Spotify probably know more about your preferences than their smaller competitors. But do they (or can they) know you better than yourself? I doubt it. You still know yourself and your preferences better than any service. Maybe they collect your digital data more systematically than you, but no, they still don’t know you better.
Let’s take the insurance business. Insurance companies have much data from many individuals, how long they live, the most common diseases, what are typical risks and so on. They also know something about you. Maybe you had to share some health data, or you have been asked to use an Apple Watch or Fitbit to collect your activity data. They might then try to personalize an insurance premium for you.
But do they know you better than you do? Do they know that you like to eat sausages and drink beer now and then? And do they know you are renovating your house and climb onto the roof without any safety equipment? Or do they know, you have incredible stress levels, because you have a tyrant boss, and your teenage daughter is entirely out of control?
Why would consumers sell their data when they could do much better simply by starting to utilize their personal data sensibly? Consumers can also use asymmetric information, even when they know more. Companies have better information on their products, supply chains and pricing than consumers, but consumers know their preferences, risks and needs far better. So, let’s build opportunities with this asymmetric information so that each party tries to maximize its own position. It is a more realistic plan for the real world than perfect information to all parties and Adam Smith’s invisible hand.
Individuals tend to keep their information and process it mainly in their heads. This has issues, and we simply run out of capacity and computing power. But this is changing. We can all now collect our data more easily and access tools to process it (see my previous article, Solutions for personal data will be the fastest-growing sector this decade).
Individuals can collect health and exercise data from wearable devices. They can also get DNA analysis and add their health records. Would the individual be powerful enough to look for optimal insurance with this data? The similar model works for other types of insurance, from car to home and life insurances. Insurance is one particular case, but it works to find holiday destinations, cars, music, or movies. When you know your situation and preferences, you can utilize it to find the best deal.
This all might sound theoretical. However, it means you have the tools to collect your personal data, apps to process that data, and apps that help you find the best deals in practice. In some cases, you could even share some data to get a better deal. This is the practical route on how people could start to utilize their data. It is naïve and unrealistic to try to create a perfect marketplace for all this data. In the real world, external parties will try to maximize and utilize theirs and others’ data, but regulators will, in due course, introduce rules to prevent abuses.