Did you know that buying generics instead of brands could hurt your credit? Or that a subscription to Hang Gliding Monthly could scare off life insurers? Or that certain employers’ access to electronic health records could lead them to classify you as “high-risk” or “high-cost”?
In all these cases, firms use “predictive analytics” to maximize profits. Consumers are the guinea pigs for these new “sciences” of the human. As Scott Peppet argues, it becomes more difficult to opt out of analytics systems as more people use them. What type of world are they leading us to?
Credit Analytics: Should Frugality be Punished?
One credit analytics company determined that buyers of cheap automotive oil were “much more likely to miss a credit-card payment” than those who paid for a brand-name oil. Spending on therapy sessions may also be a red flag. Appearing too frugal, too anxious, too spendthrift—all might lead to higher interest rates or lower credit limits. One R&D head at a credit analytics firm bragged that they consider over 300 characteristics to discover delinquency risk. He was not nearly as forthcoming about how the data is aggregated. Analyzing millions of transactions, the companies observe customers as a gardener might observe a rose garden: weeding out unpromising specimens, and giving a boost to incipient flourishers.
Many have complained about inaccuracy in these new forms of profiling, and consumers’ inability to review and correct digital dossiers collected about them. But let’s just assume that this profiling is correct, and choosing a generic really does correlate with increased credit risk. What’s the social value of this discovery? Maybe credit card companies can reduce rates infinitesimally (and increase profits) by burdening the generic buyers. But I’d be willing to bet that, for every few people whose generic purchases indicate financial trouble, there is another shopper who’s wisely frugal and increasing her chances of successfully repaying all her loans. It seems odd to penalize the financially responsible merely because they happen to engage in an activity shared by the distressed.