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The Security Value of Inefficiency

For decades, we have prized efficiency in our economy. We strive for it. We reward it. In normal times, that’s a good thing. Running just at the margins is efficient. A single just-in-time global supply chain is efficient. Consolidation is efficient. And that’s all profitable. Inefficiency, on the other hand, is waste. Extra inventory is inefficient. Overcapacity is inefficient. Using many small suppliers is inefficient. Inefficiency is unprofitable.

But inefficiency is essential security, as the COVID-19 pandemic is teaching us. All of the overcapacity that has been squeezed out of our healthcare system; we now wish we had it. All of the redundancy in our food production that has been consolidated away; we want that, too. We need our old, local supply chains — not the single global ones that are so fragile in this crisis. And we want our local restaurants and businesses to survive, not just the national chains.

We have lost much inefficiency to the market in the past few decades. Investors have become very good at noticing any fat in every system and swooping down to monetize those redundant assets. The winner-take-all mentality that has permeated so many industries squeezes any inefficiencies out of the system.

This drive for efficiency leads to brittle systems that function properly when everything is normal but break under stress. And when they break, everyone suffers. The less fortunate suffer and die. The more fortunate are merely hurt, and perhaps lose their freedoms or their future. But even the extremely fortunate suffer — maybe not in the short term, but in the long term from the constriction of the rest of society.

Efficient systems have limited ability to deal with system-wide economic shocks. Those shocks are coming with increased frequency. They’re caused by global pandemics, yes, but also by climate change, by financial crises, by political crises. If we want to be secure against these crises and more, we need to add inefficiency back into our systems.

I don’t simply mean that we need to make our food production, or healthcare system, or supply chains sloppy and wasteful. We need a certain kind of inefficiency, and it depends on the system in question. Sometimes we need redundancy. Sometimes we need diversity. Sometimes we need overcapacity.

The market isn’t going to supply any of these things, least of all in a strategic capacity that will result in resilience. What’s necessary to make any of this work is regulation.

First, we need to enforce antitrust laws. Our meat supply chain is brittle because there are limited numbers of massive meatpacking plants — now disease factories — rather than lots of smaller slaughterhouses. Our retail supply chain is brittle because a few national companies and websites dominate. We need multiple companies offering alternatives to a single product or service. We need more competition, more niche players. We need more local companies, more domestic corporate players, and diversity in our international suppliers. Competition provides all of that, while monopolies suck that out of the system.

The second thing we need is specific regulations that require certain inefficiencies. This isn’t anything new. Every safety system we have is, to some extent, an inefficiency. This is true for fire escapes on buildings, lifeboats on cruise ships, and multiple ways to deploy the landing gear on aircraft. Not having any of those things would make the underlying systems more efficient, but also less safe. It’s also true for the internet itself, originally designed with extensive redundancy as a Cold War security measure.

With those two things in place, the market can work its magic to provide for these strategic inefficiencies as cheaply and as effectively as possible. As long as there are competitors who are vying with each other, and there aren’t competitors who can reduce the inefficiencies and undercut the competition, these inefficiencies just become part of the price of whatever we’re buying.

The government is the entity that steps in and enforces a level playing field instead of a race to the bottom. Smart regulation addresses the long-term need for security, and ensures it’s not continuously sacrificed to short-term considerations.

We have largely been content to ignore the long term and let Wall Street run our economy as efficiently as it can. That’s no longer sustainable. We need inefficiency — the right kind in the right way — to ensure our security. No, it’s not free. But it’s worth the cost.

This essay previously appeared in Quartz.

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Security and Human Behavior (SHB) 2020

Today is the second day of the thirteenth Workshop on Security and Human Behavior. It’s being hosted by the University of Cambridge, which in today’s world means we’re all meeting on Zoom.

SHB is a small, annual, invitational workshop of people studying various aspects of the human side of security, organized each year by Alessandro Acquisti, Ross Anderson, and myself. The forty or so attendees include psychologists, economists, computer security researchers, sociologists, political scientists, criminologists, neuroscientists, designers, lawyers, philosophers, anthropologists, business school professors, and a smattering of others. It’s not just an interdisciplinary event; most of the people here are individually interdisciplinary.

Our goal is always to maximize discussion and interaction. We do that by putting everyone on panels, and limiting talks to six to eight minutes, with the rest of the time for open discussion. We’ve done pretty well translating this format to video chat, including using the random breakout feature to put people into small groups.

I invariably find this to be the most intellectually stimulating two days of my professional year. It influences my thinking in many different, and sometimes surprising, ways.

This year’s schedule is here. This page lists the participants and includes links to some of their work. As he does every year, Ross Anderson is liveblogging the talks.

Here are my posts on the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, and twelfth SHB workshops. Follow those links to find summaries, papers, and occasionally audio recordings of the various workshops. Ross also maintains a good webpage of psychology and security resources.

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On Cyber Warranties

Interesting article discussing cyber-warranties, and whether they are an effective way to transfer risk (as envisioned by Ackerlof’s “market for lemons”) or a marketing trick.

The conclusion:

Warranties must transfer non-negligible amounts of liability to vendors in order to meaningfully overcome the market for lemons. Our preliminary analysis suggests the majority of cyber warranties cover the cost of repairing the device alone. Only cyber-incident warranties cover first-party costs from cyber-attacks — why all such warranties were offered by firms selling intangible products is an open question. Consumers should question whether warranties can function as a costly signal when narrow coverage means vendors accept little risk.

Worse still, buyers cannot compare across cyber-incident warranty contracts due to the diversity of obligations and exclusions. Ambiguous definitions of the buyer’s obligations and excluded events create uncertainty over what is covered. Moving toward standardized terms and conditions may help consumers, as has been pursued in cyber insurance, but this is in tension with innovation and product diversity.

[..]

Theoretical work suggests both the breadth of the warranty and the price of a product determine whether the warranty functions as a quality signal. Our analysis has not touched upon the price of these products. It could be that firms with ineffective products pass the cost of the warranty on to buyers via higher prices. Future studies could analyze warranties and price together to probe this issue.

In conclusion, cyber warranties — particularly cyber-product warranties — do not transfer enough risk to be a market fix as imagined in Woods. But this does not mean they are pure marketing tricks either. The most valuable feature of warranties is in preventing vendors from exaggerating what their products can do. Consumers who read the fine print can place greater trust in marketing claims so long as the functionality is covered by a cyber-incident warranty.

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Research on Human Honesty

New research from Science: “Civic honesty around the globe“:

Abstract: Civic honesty is essential to social capital and economic development, but is often in conflict with material self-interest. We examine the trade-off between honesty and self-interest using field experiments in 355 cities spanning 40 countries around the globe. We turned in over 17,000 lost wallets with varying amounts of money at public and private institutions, and measured whether recipients contacted the owner to return the wallets. In virtually all countries citizens were more likely to return wallets that contained more money. Both non-experts and professional economists were unable to predict this result. Additional data suggest our main findings can be explained by a combination of altruistic concerns and an aversion to viewing oneself as a thief, which increase with the material benefits of dishonesty.

I am surprised, too.

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Security and Human Behavior (SHB) 2019

Today is the second day of the twelfth Workshop on Security and Human Behavior, which I am hosting at Harvard University.

SHB is a small, annual, invitational workshop of people studying various aspects of the human side of security, organized each year by Alessandro Acquisti, Ross Anderson, and myself. The 50 or so people in the room include psychologists, economists, computer security researchers, sociologists, political scientists, criminologists, neuroscientists, designers, lawyers, philosophers, anthropologists, business school professors, and a smattering of others. It’s not just an interdisciplinary event; most of the people here are individually interdisciplinary.

The goal is to maximize discussion and interaction. We do that by putting everyone on panels, and limiting talks to 7-10 minutes. The rest of the time is left to open discussion. Four hour-and-a-half panels per day over two days equals eight panels; six people per panel means that 48 people get to speak. We also have lunches, dinners, and receptions — all designed so people from different disciplines talk to each other.

I invariably find this to be the most intellectually stimulating two days of my professional year. It influences my thinking in many different, and sometimes surprising, ways.

This year’s program is here. This page lists the participants and includes links to some of their work. As he does every year, Ross Anderson is liveblogging the talks — remotely, because he was denied a visa earlier this year.

Here are my posts on the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, and eleventh SHB workshops. Follow those links to find summaries, papers, and occasionally audio recordings of the various workshops. Ross also maintains a good webpage of psychology and security resources.

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The Cost of Cybercrime

Really interesting paper calculating the worldwide cost of cybercrime:

Abstract: In 2012 we presented the first systematic study of the costs of cybercrime. In this paper,we report what has changed in the seven years since. The period has seen major platform evolution, with the mobile phone replacing the PC and laptop as the consumer terminal of choice, with Android replacing Windows, and with many services moving to the cloud.The use of social networks has become extremely widespread. The executive summary is that about half of all property crime, by volume and by value, is now online. We hypothesised in 2012 that this might be so; it is now established by multiple victimisation studies.Many cybercrime patterns appear to be fairly stable, but there are some interesting changes.Payment fraud, for example, has more than doubled in value but has fallen slightly as a proportion of payment value; the payment system has simply become bigger, and slightly more efficient. Several new cybercrimes are significant enough to mention, including business email compromise and crimes involving cryptocurrencies. The move to the cloud means that system misconfiguration may now be responsible for as many breaches as phishing. Some companies have suffered large losses as a side-effect of denial-of-service worms released by state actors, such as NotPetya; we have to take a view on whether they count as cybercrime.The infrastructure supporting cybercrime, such as botnets, continues to evolve, and specific crimes such as premium-rate phone scams have evolved some interesting variants. The over-all picture is the same as in 2012: traditional offences that are now technically ‘computercrimes’ such as tax and welfare fraud cost the typical citizen in the low hundreds of Euros/dollars a year; payment frauds and similar offences, where the modus operandi has been completely changed by computers, cost in the tens; while the new computer crimes cost in the tens of cents. Defending against the platforms used to support the latter two types of crime cost citizens in the tens of dollars. Our conclusions remain broadly the same as in 2012:it would be economically rational to spend less in anticipation of cybercrime (on antivirus, firewalls, etc.) and more on response. We are particularly bad at prosecuting criminals who operate infrastructure that other wrongdoers exploit. Given the growing realisation among policymakers that crime hasn’t been falling over the past decade, merely moving online, we might reasonably hope for better funded and coordinated law-enforcement action.

Richard Clayton gave a presentation on this yesterday at WEIS. His final slide contained a summary.

  • Payment fraud is up, but credit card sales are up even more — so we’re winning.

  • Cryptocurrencies are enabling new scams, but the big money is still being lost in more traditional investment fraud.

  • Telcom fraud is down, basically because Skype is free.

  • Anti-virus fraud has almost disappeared, but tech support scams are growing very rapidly.

  • The big money is still in tax fraud, welfare fraud, VAT fraud, and so on.

  • We spend more money on cyber defense than we do on the actual losses.

  • Criminals largely act with impunity. They don’t believe they will get caught, and mostly that’s correct.

Bottom line: the technology has changed a lot since 2012, but the economic considerations remain unchanged.

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The Concept of “Return on Data”

This law review article by Noam Kolt, titled “Return on Data,” proposes an interesting new way of thinking of privacy law.

Abstract: Consumers routinely supply personal data to technology companies in exchange for services. Yet, the relationship between the utility (U) consumers gain and the data (D) they supply — “return on data” (ROD) — remains largely unexplored. Expressed as a ratio, ROD = U / D. While lawmakers strongly advocate protecting consumer privacy, they tend to overlook ROD. Are the benefits of the services enjoyed by consumers, such as social networking and predictive search, commensurate with the value of the data extracted from them? How can consumers compare competing data-for-services deals? Currently, the legal frameworks regulating these transactions, including privacy law, aim primarily to protect personal data. They treat data protection as a standalone issue, distinct from the benefits which consumers receive. This article suggests that privacy concerns should not be viewed in isolation, but as part of ROD. Just as companies can quantify return on investment (ROI) to optimize investment decisions, consumers should be able to assess ROD in order to better spend and invest personal data. Making data-for-services transactions more transparent will enable consumers to evaluate the merits of these deals, negotiate their terms and make more informed decisions. Pivoting from the privacy paradigm to ROD will both incentivize data-driven service providers to offer consumers higher ROD, as well as create opportunities for new market entrants.

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Prices for Zero-Day Exploits Are Rising

Companies are willing to pay ever-increasing amounts for good zero-day exploits against hard-to-break computers and applications:

On Monday, market-leading exploit broker Zerodium said it would pay up to $2 million for zero-click jailbreaks of Apple’s iOS, $1.5 million for one-click iOS jailbreaks, and $1 million for exploits that take over secure messaging apps WhatsApp and iMessage. Previously, Zerodium was offering $1.5 million, $1 million, and $500,000 for the same types of exploits respectively. The steeper prices indicate not only that the demand for these exploits continues to grow, but also that reliably compromising these targets is becoming increasingly hard.

Note that these prices are for offensive uses of the exploit. Zerodium — and others — sell exploits to companies who make surveillance tools and cyber-weapons for governments. Many companies have bug bounty programs for those who want the exploit used for defensive purposes — i.e., fixed — but they pay orders of magnitude less. This is a problem.

Back in 2014, Dan Geer said that that the US should corner the market on software vulnerabilities:

“There is no doubt that the U.S. Government could openly corner the world vulnerability market,” said Geer, “that is, we buy them all and we make them all public. Simply announce ‘Show us a competing bid, and we’ll give you [10 times more].’ Sure, there are some who will say ‘I hate Americans; I sell only to Ukrainians,’ but because vulnerability finding is increasingly automation-assisted, the seller who won’t sell to the Americans knows that his vulns can be rediscovered in due course by someone who will sell to the Americans who will tell everybody, thus his need to sell his product before it outdates is irresistible.”

I don’t know about the 10x, but in theory he’s right. There’s no other way to solve this.

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Security Vulnerabilities in Cell Phone Systems

Good essay on the inherent vulnerabilities in the cell phone standards and the market barriers to fixing them.

So far, industry and policymakers have largely dragged their feet when it comes to blocking cell-site simulators and SS7 attacks. Senator Ron Wyden, one of the few lawmakers vocal about this issue, sent a letter in August encouraging the Department of Justice to “be forthright with federal courts about the disruptive nature of cell-site simulators.” No response has ever been published.

The lack of action could be because it is a big task — there are hundreds of companies and international bodies involved in the cellular network. The other reason could be that intelligence and law enforcement agencies have a vested interest in exploiting these same vulnerabilities. But law enforcement has other effective tools that are unavailable to criminals and spies. For example, the police can work directly with phone companies, serving warrants and Title III wiretap orders. In the end, eliminating these vulnerabilities is just as valuable for law enforcement as it is for everyone else.

As it stands, there is no government agency that has the power, funding and mission to fix the problems. Large companies such as AT&T, Verizon, Google and Apple have not been public about their efforts, if any exist.

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