The Privacy-Utility Trade-Off of Location Tracking in Ad Personalization

TL;DR

This paper investigates how geographical and behavioral data contribute to ad targeting, revealing that location data is most valuable early on but becomes substitutable as behavioral data accumulates, highlighting a privacy-utility trade-off.

Contribution

It combines economic theory, machine learning, and causal inference to quantify the value and interplay of geographical and behavioral data in ad personalization.

Findings

Geographical data is most valuable during the early cold-start stage.

Location data improves targeting by nearly 20% when behavioral data is limited.

Behavioral data eventually substitutes geographical data as user histories grow.

Abstract

Firms collect vast amounts of behavioral and geographical data on individuals. While behavioral data captures an individual's digital footprint, geographical data reflects their physical footprint. Given the significant privacy risks associated with combining these data sources, it is crucial to understand their respective value and whether they act as complements or substitutes in achieving firms' business objectives. In this paper, we combine economic theory, machine learning, and causal inference to quantify the value of geographical data, the extent to which behavioral data can substitute for it, and the mechanisms through which it benefits firms. Using data from a leading in-app advertising platform in a large Asian country, we document that geographical data is most valuable in the early cold-start stage, when behavioral histories are limited. In this stage, geographical data complements behavioral data, improving targeting performance by almost 20%. As users accumulate richer behavioral histories, however, the role of geographical data shifts: it becomes largely substitutable, as behavioral data alone captures the relevant heterogeneity. These results highlight a central privacy-utility trade-off in ad personalization and inform managerial decisions about when location tracking creates value.