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Viewing posts tagged Security and Economics


I'm short on time, but I did want to do a quick post about Pete Lindstrom's post on ROSI. He makes a good point about effieciencies. But there are three ways a company creates value:


There is a very article in the NY Times about how groups can profit by punishing members, in particular, by punishing free riders.

In the experiment, investigators at the University of Erfurt in Germany enrolled 84 students in the investment game and gave them 20 tokens apiece to start. In each round of the game, every participant decided whether to hold on to the tokens or invest some of them in a fund whose guaranteed profit was distributed equally among all members of the group, including the "free riders" who sat on their money. Because the profit was determined by a multiple of the tokens invested, each participant who contributed to the fund enjoyed less of a return than if the free riders had done so as well.


In an interesting development in the economics of information security and data breaches, a group of banks is suing TJX for "negligent misrepresentation". According to Massachusetts Bankers Association CEO Daniel Forte:

"Banks all across the nation re-issued debit cards as a result of the TJX data breach. Preliminary estimates of the costs vary from institution to institution, up to $25 dollars per card," MBA officials said in a statement. "This alone would run into many millions of dollars for banks throughout the country. Moreover, when fraud occurs, banks generally cover the entire fraud, replacing money in customer accounts to protect their customers."
The banks, which once owned Visa, the creator of the PCI data security standards, now recognize that there costs are an externality in that system. The tort system is a pretty good system for dealing with externalities. Unfortunately for those who like to have real data on these matters, if the case is settled out of court, we probably won't know how much it actually costs TJX. I continue to believe it will not affect their brand or sales , but it will hurt their stock price as would any expenses that do not generate revenue.


Been a long time since I posted anything. I'm trying to get back into the swing.


Tim Erlin started a discussion about brand damage. However, the data he used was really about stock prices, not "brand", which is much harder to quanitify (and it's not easy to qauntify the affects of breach on stock price).

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