During our break in class this week, in response to Billy’s
request to pay his auction debt immediately, Mr. Coppock proudly professed his
unwillingness to use Venmo. To paraphrase, he said “as soon as any app asks for
my bank account information, I’m out”. I was confused by this: why did an
economics professor with little to no cybersecurity experience (a result of
rational ignorance, of course) refuse to recognize the expertise of a digital financial
services company owned by PayPal,
which accounts for nearly two thirds of the online payment services market?
Quite frankly, I don’t buy it: whether or not he knows it, Mr. Coppock is making
a rational choice.
Perhaps, I thought, Mr. Coppock’s ignorance of mobile wallet
technology was such that the only information in the space that was worth his
time beyond basic name recognition was in learning about data breaches. After
all, being able to discuss current events carries additional utility beyond the
intrinsic value of understanding cybersecurity, so it would be rational for him
to at least scan headlines whenever a major retailer’s database was hacked.
Thus it is plausible that Mr. Coppock’s fear is a result of a high level of
rational ignorance combined with a high proportion of fear-inducing
information.
However, that explanation did not satisfy me; Mr. Coppock
was simply too excited in his response, almost as if he were happy to share
that he didn’t trust our silly digital wallets. He spoke like he wore a badge
of honor, or… an “I Voted” sticker. With
that realization, it became clear that I could apply the individual voter
choice model to this decision making process.
Like a voter deciding whether to hit the polls, or a
consumer purchasing a good, Mr. Coppock would use Venmo if the marginal
benefits exceeded the marginal costs. However, there are some adjustments to be
made to the original model.
E[MB] + D > MC
p|V1-V2|= E[MB]
We recall in the original voter choice
model, our marginal benefit was the probability our vote swayed the election
times the benefit we would receive if our chosen candidate won the election. We
concluded that E[MB] and MC were insignificant, and that the real reason people
vote is D, the expressive and instrumental values of having voted. Now, to
explain why Mr. Coppock does not use Venmo, we simply switch MC and MB:
E[MC] + D > MB
p|Coppock’s Bank
Balance|= E[MC]
Now, MB is the utility gained from using Venmo, mostly from
enhanced collection ability in all-pay auctions conducted in public choice classes.
MC is the amount Mr. Coppock stands to lose if hackers break into Venmo’s
encrypted databases and empty his bank account, and p is the probability that
A. the hackers overcome Venmo’s security measures, B. that they take his money,
and C. that it is impossible for him to recover it through his own legal action
or Venmo’s corporate response. As an aside, I would also expect that a breach
of this magnitude would prompt a response from major banks themselves, enacting
fraud protection measures and further decreasing the probability that one would
lose any money from a breach. Now, it could be argued that there are lesser
consequences that are still irritating such as having to change passwords, but
the expected cost of those is arguably insignificant even with a higher
probability of being incurred.
So, this leads us to D: the expressive utility of not using
Venmo, which acts as a cost because it would be lost were Mr. Coppock to
finally give in and make a Venmo account. By refusing to adopt new technology,
Mr. Coppock is able to hold himself above us careless millennials, and take
pride in his own supposed financial security.
P.S.
Interestingly, even by writing this blog post, I have
increased D in Mr. Coppock’s equation: now, if he adopts Venmo, he will face
additional social costs by bearing the shame of being wrong and proving me
right. Therefore, I predict he will find some more evidence and form a stronger
argument against Venmo’s security, increasing his expressive utility by
doubling down on his earlier point. In this way, I have decreased his rational ignorance by questioning his knowledge and reasoning on the topic and creating incentives for him to spend more time learning about it.
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