How Transparency Can Harm Consumers

“The level of transparency the world has now won’t support having two identities for a person.” – Mark Zuckerberg.

For many consumer activities, transparency, defined as disclosing personal information, is seen as a positive force. For example, Facebook and other social media sites have “real name policies” that require users to provide and use their real name, which can be verified with an ID or document. Online dating sites like Tinder reward users for getting their photos authenticated (with live or AI methods) by giving them a badge to display on their profile.

The Benefits of Consumer Disclosure

The idea behind encouraging customers to disclose personal information is two-fold. First, disclosure is a way to discourage dysfunctional behaviors, engender trust, and facilitate exchanges and relationships with others. If others know your real name and personal details on Facebook, you will be less likely to be rude or abusive, try to scam others, etc. Similarly, if your photo is verified on Tinder, you won’t be able to catfish potential romantic partners. The logic is the more personal information you share, the more others will trust you.

The issue of trust is particularly important when consumers engage in buying, selling, or renting activities. On sites like Airbnb, Uber, and eBay, disclosing personal information reduces fraudulent buying behaviors and allows these platforms to function sustainably.

The second benefit of consumer disclosure is that the more the marketer knows about the customer, the more personalized service they can provide. This so-called principle of customer orientation, which is to understand the customer and then design and deliver offerings to suit their preferences and tastes, is central to today’s marketing approach. Decades of research has shown that customer-oriented marketing satisfies customers and contributes to their well-being.

The Downsides of Consumer Disclosure

These benefits notwithstanding, there’s a significant downside for customers. Revealing personal information creates the potential for them to be exploited and discriminated against by the marketer, other customers, and third parties accessing the information. Marketing scholars call this the privacy-personalization paradox. Furthermore, in many settings, consumers often misunderstand or fail to comprehend how much personal information they disclose or how sellers use it.

Take the case of Airbnb, where short-term renters and hosts can provide personal information such as their name, a photograph, and a brief introduction. Although such transparency can benefit by humanizing the renter and reassuring potential hosts who may be nervous about letting strangers stay in their homes, it also has downsides. Research has found that disclosing one’s racial identity on the Airbnb platform through name or photograph can lead to racial discrimination.

For instance, one influential field experiment on Airbnb found that booking requests from consumers with distinctively Black names like Tanisha Jackson and Tyrone Robinson were 16% less likely to be accepted, even though each rejection cost the hosts between $65 and $100 in foregone revenue. Racial discrimination was widespread in the study. As the authors put it,

“Our results are remarkably persistent. Both African American and white hosts discriminate against African American guests; both male and female hosts discriminate; both male and female African American guests are discriminated against. Effects persist both for hosts who offer an entire property and for hosts who share the property with guests. Discrimination persists among experienced hosts, including those with multiple properties and those with many reviews. Discrimination persists and is of similar magnitude in high- and low-priced units, in diverse and homogeneous neighborhoods.”

Strategic Disclosure

On the flip side, savvy consumers can also use personal disclosure to benefit themselves when borrowing money from others. On one peer-to-peer lending site, borrowers can voluntarily provide personal information, explaining why they need money, their financial situation, and how they will repay it. Research has found that disclosing personal information, such as an explanation for their bad credit score, monthly expenses, and how they plan to repay the loan, even when such information is unverifiable, led to receiving funding from more lenders and, ultimately, getting a lower interest loan. Another study found that borrowers who included more identity claims in their narratives received more money. Certain identity claims, like being trustworthy or successful, were more effective than others, such as being moral or suffering economic hardship. However, later on, these very borrowers were less likely to repay the loan, suggesting that they opportunistically disclosed possibly concocted narratives about themselves.

Conclusion

Many people have an idealistic view of transparency, believing that more transparency is better. When businesses know their customers and customers know each other, trust increases, and rudeness and dysfunction decrease. While this may be true in many cases, the opposite can also happen. Personal disclosure gives the recipient power over the discloser, and if they are so inclined, they can discriminate against or otherwise exploit the discloser. Contrarily, the discloser can use disclosure strategically to gain an upper hand by painting a false or misleading picture about themselves. More is not always better; transparency must be balanced with privacy and anonymity to produce the most benefit in consumer settings.