Posts tagged ‘security’

Privacy and the Market for Lemons, or How Websites Are Like Used Cars

I had a fun and engaging discussion on the “Paying With Data” panel at the South by Southwest conference; many thanks to my co-panelists Sara Marie Watson, Julia Angwin and Sam Yagan. I’d like to elaborate here on a concept that I briefly touched upon during the panel.

The market for lemons

In a groundbreaking paper 40 years ago, economist George Akerlof explained why so many used cars are lemons. The key is “asymmetric information:” the seller of a car knows more about its condition than the buyer does. This leads to “adverse selection” and a negative feedback spiral, with buyers tending to assume that there are hidden problems with cars on the market, which brings down prices and disincentivizes owners of good cars from trying to sell, further reinforcing the perception of bad quality.

In general, a market with asymmetric information is in danger of developing these characteristics: 1. buyers/consumers lack the ability to distinguish between high and low quality products 2. sellers/service providers lose the incentive to focus on quality and 3. the bad gradually crowds out the good since poor-quality products are cheaper to produce.

Information security and privacy suffer from this problem at least as much as used cars do.

The market for security products and certification

Bruce Schneier describes how various security products, such as USB drives, have turned into a lemon market. And in a fascinating paper, Ben Edelman analyzes data from TRUSTe certifications and comes to some startling conclusions [emphasis mine]:

Widely-used online “trust” authorities issue certifications without substantial verification of recipients’ actual trustworthiness. This lax approach gives rise to adverse selection: The sites that seek and obtain trust certifications are  actually less trustworthy than others. Using a new dataset on web site safety, I demonstrate that sites certified by the best-known authority, TRUSTe, are more than twice as likely to be untrustworthy as uncertified sites. This difference remains statistically and economically significant when restricted to “complex” commercial sites.

In a 2004 investigation after user complaints, TRUSTe gave Gratis Internet a clean bill of health. Yet subsequent New York Attorney General litigation uncovered Gratis’ exceptionally far-reaching privacy policy violations — selling 7.2 million users’ names, email addresses, street addresses, and phone numbers, despite a privacy policy exactly to the contrary.

TRUSTe’s “Watchdog Reports” also indicate a lack of focus on enforcement. TRUSTe’s postings reveal that users continue to submit hundreds of complaints each month. But of the 3,416 complaints received since January 2003, TRUSTe concluded that not a single one required any change to any member’s operations, privacy statement, or privacy practices, nor did any complaint require any revocation or on-site audit. Other aspects of TRUSTe’s watchdog system also indicate a lack of diligence.

The market for personal data

In the realm of online privacy and data collection, the information asymmetry results from a serious lack of transparency around privacy policies. The website or service provider knows what happens to data that’s collected, but the user generally doesn’t. This arises due to several economic, architectural, cognitive and regulatory limitations/flaws:

  • Each click is a transaction. As a user browses around the web, she interacts with dozens of websites and performs hundreds of actions per day. It is impossible to make privacy decisions with every click, or have a meaningful business relationship with each website, and hold them accountable for their data collection practices.
  • Technology is hard to understand. Companies can often get away with meaningless privacy guarantees such as “anonymization” as a magic bullet, or “military-grade security,” a nonsensical term. The complexity of private browsing mode has led to user confusion and a false sense of safety.
  • Privacy policies are filled with legalese and no one reads them, which means that disclosures made therein count for nothing. Yet, courts have upheld them as enforceable, disincentivizing websites from finding ways to communicate more clearly.

Collectively, these flaws have led to a well-documented market failure—there’s an arms race to use all means possible to entice users to give up more information, as well as to collect it passively through ever-more intrusive means. Self-regulatory organizations become captured by those they are supposed to regulate, and therefore their effectiveness quickly evaporates.

TRUSTe seems to be up to some shenanigans the online tracking space as well. As many have pointed out, the TRUSTe “Tracking Protection List” for Internet Explorer is in fact a whitelist, allowing about 4,000 domains—almost certainly from companies that have paid TRUSTe—to track the user. Worse, installing the TRUSTe list seems to override the blocking of a domain via another list!

Possible solutions

The obvious response to a market with asymmetric information is to correct the information asymmetry—for used cars, it involves taking it to a mechanic, and for online privacy, it is consumer education. Indeed, the What They Know series has done just that, and has been a big reason why we’re having this conversation today.

However, I am skeptical that the market can be fixed though consumer awareness alone. Many of the factors I’ve laid out above involve fundamental cognitive limitations, and while consumers may be well-educated about the general dangers prevalent online, it does not necessarily help them make fine-grained decisions.

It is for these reasons that some sort of Government regulation of the online data-gathering ecosystem seems necessary. Regulatory capture is of course still a threat, but less so than with self-regulation. Jonathan Mayer and I point out in our FTC Comment that ad industry self-regulation of online tracking has been a failure, and argue that the FTC must step in and enforce Do Not Track.

In summary, information asymmetry occurs in many markets related to security and privacy, leading in most cases to a spiraling decline in quality of products and services from a consumer perspective. Before we can talk about solutions, we must clearly understand why the market won’t fix itself, and in this post I have shown why that’s the case.

Update. TRUSTe president Fran Maier responds in the comments.

Update 2. Chris Soghoian points me to this paper analyzing privacy economics as a lemon market, which seems highly relevant.

Thanks to Jonathan Mayer for helpful feedback.

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March 18, 2011 at 4:37 pm 6 comments

One Click Frauds and Identity Leakage: Two Trends on a Collision Course

One of my favorite computer security papers of 2010 is by Nicolas Christin, Sally Yanagihara and Keisuke Kamataki on “one click frauds,” a simple yet shockingly effective form of social engineering endemic to Japan. I will let the authors explain:

In the family apartment in Tokyo, Ken is sitting at his computer, casually browsing the free section of a mildly erotic website. Suddenly, a window pops up, telling him,

Thank you for your patronage! You successfully registered for our premium online services, at an incredible price of 50,000 JPY. Please promptly send your payment by bank transfer to ABC Ltd at Ginko Bank, Account 1234567. Questions? Please contact us at 080-1234-1234.

Your IP address is, you run Firefox 3.5 over Windows XP, and you are connecting from Tokyo.

Failure to send your payment promptly will force us to mail you a postcard reminder to your home address. Customers refusing to pay will be prosecuted to the fullest extent of the law. Once again, thank you for your patronage!

A sample postcard reminder is shown on the screen, and consists of a scantily clad woman in a provocative pose. Ken has a sudden panic attack: He is married, and, if his wife were to find out about his browsing habits, his marriage would be in trouble, possibly ending in divorce, and public shame. In his frenzied state of mind, Ken also fears that, if anybody at his company heard about this, he could possibly lose his job. Obviously, those website operators know who he is and where he lives, and could make his life very difficult. Now, 50,000 JPY (USD 500) seems like a small price to pay to make all of this go away. Ken immediately jots down the contact information, goes to the nearest bank, and acquits himself of his supposed debt.

Ken has just been the victim of a relatively common online scam perpetrated in Japan, called “One Click Fraud.” In this fraud, the “customer,” i.e., the victim, does not enter any legally binding agreement, and the perpetrators only have marginal information about the client that connected to their website (IP address, User-Agent string), which does not reveal much about the user. However, facing a display of authority stressed by the language used, including the notion that they are monitored, and a sense of shame from browsing sites with questionable contents, most victims do not realize they are part of an extortion scam. Some victims even call up the phone numbers provided, and, in hopes of resolving the situation, disclose private information, such as name or address, to their tormentors, which makes them even more vulnerable to blackmail.

As a result, One Click Frauds have been very successful in Japan. Annual police reports show that the estimated amount of monetary damages stemming from One Click Frauds and related confidence scams are roughly 26 billion JPY per year (i.e., USD 260 million/year). [emphasis mine]

The authors offer a fascinating economic analysis based on a near-exhaustive collection of fraud reports over a several-year period. Each scam offers 3 types of data points: the domain name where the scam appeared, the phone number the victim is asked to call, and the bank account number where the money is asked to be deposited. They plot the graph of all links between the ~500 domains, ~700 bank accounts and ~200 phone numbers, and report, among other nifty findings, that at most 13 groups are responsible for over half of all one-click frauds. Based on simple cost estimates, they also find that for each scam operated, the scammers recover their costs (bank account fee, bandwidth, etc.) with as few as 4 victims per year.

In this post I want to talk about the possible evolution of one-click frauds. At some point, either due to public awareness campaigns or due to saturation, the Japanese public will catch on to the fact that the attempted blackmail is fake and that the websites don’t actually have their identity. When this happens the scammers will be forced to up their game. Another impetus for increasing sophistication is making the fraud work outside Japan—the current version probably won’t work; the instinctive obedience of apparent authority seems characteristically Japanese.

And by ‘up their game,’ I mean that the scammers will probably get wise to the fact that they can discover the victim’s actual identity, and establish a credible threat instead of a fake one.

Readers of this blog know that I have announced or reported numerous attacks/vulnerabilities under the “ubercookies” series (1, 2, 3, 4, and part of 5) that allow a website to uncover a visitor’s identity, i.e., a Google/Facebook/Twitter handle. At the same time, connecting an online profile or email address to real-world information is becoming increasingly easy to automate. Putting two and two together, it is clear why one-click frauds could get very serious any day.

What might stop this logical progression of one-click frauds? Perhaps all identity-leak vulnerabilities will be found and fixed, but that’s a rather naïve hope, as the history of malware shows. Or maybe the public will eventually learn to resist the scam even in the face of a credible threat. That will take a long time, however, and a lot of damage will be done by then. Perhaps the technical skills required will remain beyond the reach of the scammers. But experience suggests that with a sufficiently lucrative prize, technical sophistication is no barrier—all it takes is one or two actual hackers; script-kiddie scammers can take care of the rest.

The best hope, as with any scam, is law enforcement. The authors list several factors, many specific to Japan, why the prosecution probability for one-click frauds is currently low. In addition, penalties for those who do get caught are also low: “One Click Frauds very often do not meet the legal tests necessary for qualifying as “fraud,” as in the vast majority of cases, the victim pays up immediately, and there is no active blackmailing effort from the miscreant.” A version of the scam that involved identity stealing would likely fall under the US Computer Fraud and Abuse Act or an equivalent, and would thus be more clearly illegal. Will this make a difference? Let’s wait and see.

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February 21, 2011 at 5:30 pm 2 comments

Yet Another Identity Stealing Bug. Will Creeping Normalcy be the Result?

Elie Bursztein points me to a “Cross Site URL Hijacking” attack which, among other things, allows a website to identify a visitor instantly (if they are using Firefox) by finding their Google and possibly Facebook IDs. Here is a live demo and here’s a paper.

For the security geeks, the attack works by exploiting a Firefox bug that allows a page in the attacker domain to infer URLs of pages in the target domain. If a page like redirects to[username] (which is quite common), the attacker can learn the username by requesting the page in a script tag.

Let us put this attack in context. Stealing the identity of a web visitor should be familiar to readers of this blog. I’ve recently written about doing this via history stealing, then a bug in Google spreadsheets, and now we have this. While the spreadsheets bug was fixed, the history stealing vulnerability remains in most browsers. Will new bugs be found faster than existing ones getting fixed? The answer is probably yes.

Something that is of much more concern in the long run is Facebook’s instant personalization, which is basically like identity stealing, except it is a feature rather than a bug. Currently Facebook identities are available without user consent to only 3 partners (Yelp, Pandora and but there will be inevitable competitive pressures both for Facebook to open this up to more websites as well as for other identity providers to offer a similar service.

Legitimate methods and hacks based on bugs are not entirely distinct. Two XSS attacks on were found in quick succession either of which could have been exploited by a third (fourth?) party for identity stealing. Instant personalization (and similar attempts at an “identity layer”) greatly increase the chance of bugs that leak your identity to every website, authorized or not.

As identity-stealing bugs as well as identity-sharing features proliferate, the result is going to be creeping normalcy — users will get slowly inured to the idea that any website they visit might have their identity. And that will be a profound change for the way the web works. Of course, savvy users will know how to turn off the various tracking mechanisms, but most people will be left in the lurch.

We are still at the early stages of this shift. It is clear that it will have both good and ill effects. For example, people are much more civil when interacting under their real-life identity. For this reason, there is quite a clamor for identity. For instance, see News Sites Rethink Anonymous Online Comments and The Forces Align Against Anonymity. But like every change, this one is going to be hard to get used to.

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June 1, 2010 at 9:38 am 2 comments


I'm an assistant professor of computer science at Princeton. I research (and teach) information privacy and security, and moonlight in technology policy.

This is a blog about my research on breaking data anonymization, and more broadly about information privacy, law and policy.

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