Facebook and the Principal-Agent Problem

Earlier this week, Mark Zuckerberg testified before the US Congress about User Privacy within The Facebook.

Mark Zuckerberg testifies before Congress in April 2018
Mark Zuckerberg testifies before Congress in April 2018

Six months ago, this wasn’t even a conversation.

For years, technology gurus such as Richard Stallman have been calling for technology controlled by people, not by for-profit companies. Stallman’s viewpoint has been that Software, in it’s digital form, costs nothing to reproduce. GNU/Linux and the related tools are successful examples of Free Software. If you’re not familiar with this software, it now runs much of the World Wide Web. It’s a replacement for Windows or OSX, and can be downloaded, modified, and used — for no cost.

When software is controlled by companies, on the other hand, those companies require payment in some form or another. It’s the same concept as broadcast television advertising:

If you don’t pay for the things you use, you are the product — your attention is being sold to advertisers.

This is a clear example of the Principal-Agent Problem. In this classic economic problem, the Agent (Facebook) makes decisions on behalf of the Principal (Users). The Principal is choosing to not make decisions on her own behalf, instead granting that agency to the Agent. The Agent (Facebook) can choose to make decisions that may not be in the best interest of the Principal.

In this case, the Agent Facebook has been able to profit from Advertisers based on the massive troves of data that Principals (Users) have willingly uploaded and posted publicly on their pages. The Agent had more information about the value of that data and profited from that difference in knowledge. (The data is more valuable in aggregate, where the Agent can segment people into demographics for advertisement purposes).

Everyone was aware of this trade-off, service for advertisements. If they weren’t, they must have been very naïve to think the related advertisements were random occurrences.

Firms like Cambridge Analytica didn’t even need to buy this information. When it’s posted on everyone’s page and publicly visible, they were able to just take the data.

Now, everyone is up in arms.


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It seems to be more a case of cognitive dissonance, that people were willing to give up this data, not knowing that it could be used to influence an election. Everyone who uses Facebook is complicit in this scandal. They had been warned to not share personal data — but the convenience factor overrode any sense of concern. But of course, we couldn’t possibly know! and now they’re looking for somewhere else to place the blame.

Here we are, everyone acting shocked that their data was available to anyone that chose to use it.

Be aware, one way or another, you pay for what you get.

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