We judge one another in part on our purchases and possessions -- personal-economic expressions that may change in an economic downturn.
Did you shop at Macy's, but with the economic decline, do you now visit Walmart instead? Did you say goodbye to Mr. Goodwrench and take your business to a tire retread shop?
We are not alone in making judgments of ourselves based on what we purchase and own... Credit companies, in an attempt to protect themselves against consumer defaults, have been known to profile our economic personalities. By constructing a model of what we charge and where we shop, they hope to detect who is under economic duress.
Earlier this year, a New York Times article raised suspicions that American Express may have created a profile of members' economic personalities -- and may have used such data to lower certain card-holders' credit limits.
The Times article's key revelation, however, is that CompuCredit, a subprime lender, got in trouble with the Federal Trade Commission (FTC) for tracking where their clients shopped, and lowering credit ratings, without disclosure, on clients who exhibited greater credit risks by spending in particular patterns.
The exact formula CompuCredit used was undisclosed, but the FTC alleged the algorithm tracked a card-holder's purchases from telemarketers, payments to marriage counselors, personal counselors, tire retreading and repair shops, bars and nightclubs, pool halls, pawnshops and massage parlors.
Let us assume that the work of the statisticians at CompuCredit was mathematically sound. A reasonable interpretation of their list of risks is that: entering into marriage counseling is, on average, an indicator of the heightened risk of marriage dissolution (and ensuing economic problems); using retreaded tires rather than buying new reflects current economic distress; and frequenting bars and nightclubs can be a sign of increased stress or even of oncoming impairment due to substance abuse.
Yet personality prediction in the economic sphere (as well as other spheres) is probabilistic, not determined. Or, as one commentator suggested in the article, changes in economic behavior are, so far as measurement goes, a "blunt instrument."
Surely seeing a marriage counselor can reflect a married couple's awareness of the importance of their marriage and their motivation to keep it alive.
Similarly, switching from the automobile dealership and its new tires to retreaded tires could reflect a prudent choice in response to economic pressures, just as frequenting bars could, in some instances, reflect networking for a better job.
Each such economic risk factor identified by CompuCredit could be an economic positive in one instance or another. What works "on average" in other words, won't necessarily apply in the specific case. Yet both the power of the average for profiling personality, and the frequent exceptions posed by individual cases, are realities when assessing human personality and its expressions.
CompuCredit's actuarial study of personality (assuming it was done properly) is fascinating. Yet the practice of modeling economic personality from such data without disclosing the practice to credit-users brings up further concerns of privacy and fairness -- hence the involvement of the FTC and the interest of the New York Times.
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Notes: Several articles reported the FTC action against CompuCredit, which concerned their Aspire Visa card. One article appeared in Business Week: Silver-Greenberg, J. (6/19/2008). Your lifestyle may hurt your credit. Business Week. Another example included: Lieber, R. (January 30, 2009). Your Money: American Express kept a (very) watchful eye on charges. New York Times. The relevant sections of the FTC complaint were points 74-76 (pp. 34-35) of Federal Trade Comission, Paintiff, v. CompuCredit Corporation and Jefferson Capital Systems, LLC, Defendants (United States Disctrict Court for the Northern District of Georgia, Atlantic Division) Civil No. 1:08-CV-1976-BBM-RGV; FTC File No. 062-3212; filed 6-10-2008; last modified 19-12-2008.
Copyright (c) 2009 John D. Mayer
