Imagine that, at some point in the near future, a large information company like Google or Facebook comes up with a metric to determine how fashionable or popular an individual is, call it a “quantified status” measure. Klout is one attempt to do this already, but I don’t think it’s particularly successful. I have in mind something more like “whuffie” from Cory Doctorow’s Down and Out in the Magic Kingdom. Now, imagine that in addition to having a good metric of your reputation, this company also produces statistical evidence showing that influential purchasers provide a value to the company whose products they purchase. If you see Cory Doctorow using an iPad, it influences perceptions of iPads to make more consumers think they are cool, and that increases iPad sales. Think here of Podolny’s work on “status signals.” Similarly, if someone low in status uses your product, it actually costs you sales.* Maybe the relationship isn’t perfect, but it’s statistically significant and substantively important (a high status person buying your product is worth substantially more than the sale price, a low status person either actually costs you money or at a minimum nets you much less than the sale price).

Should the company be allowed to use this quantified status measure to charge different prices to consumers? In other words, if an iPad normally costs $300, should Apple be allowed to sell it for $200 to someone with relatively high status, and $400 to someone with relatively low status? Companies already do a bit of this here and there: giving away free bags and gadgets to celebrities, for example. But here they would take it to the extreme – iPads no longer have a single price, their price is always a function of the purchaser’s status. No one would be outright prohibited from buying iPads, but some individuals would be charged a very large amount to make up for the bit of damage they do to the brand and the “cool factor” of the product.

Now suppose that this quantified status measure correlates very heavily with race, education, class origin, sexuality, gender, age, and/or having certain physical disabilities. Would your answer to the previous question change? Let’s stick with race. Suppose that quantified status had a pretty strong correlation with race, and thus by adopting quantified status as a pricing factor Apple would end up charging black customers $50 more on average, and white customers $10 less on average. But, keep in mind that quantified status never looked at race as a variable – instead, it looked at things like your purchase history, your number of Facebook friends, how much status your friends had, etc. And keep in mind that Apple has a business justification for adopting quantified status – it has statistical models showing that low status customers actually cost it money, and high status customers are worth more than they are paying. To not charge different prices would be to throw money away. Apple isn’t engaging in price discrimination in the classic sense of charging customers by their “willingness to pay,” but rather determining that selling an iPad to Cory Doctorow is actually an entirely different, but commensurable, transaction from selling one to me. What should Apple do? And should the state step in to stop it?

The example above sounds a little bit fanciful, although most of the elements to make it possible are in place already for some kinds of companies and purchases. But the example also maps very closely onto the actual history of credit scoring (see Martha Poon’s work, among others). Credit scoring came onto the scene in the 1960s and 1970s as a way for consumer credit providers to more accurately assess whether individuals would be likely to default. In the 1990s, mortgage lenders adopted credit scoring as one of the most important indicators of whether a borrower was a good risk. But, rather than simply excluding individuals who were deemed a poor risk, lenders started charging different prices – different interest rates – for loans to customers with lower credit scores. Mortgage lenders in the mid-20th century relied on control-by-screening (not lending to individuals with bad credit histories), but charged relatively similar prices to everyone who received a loan. In the 1990s, they transitioned to control-by-risk, charging a risk-based price to borrowers, with credit scores playing a big part in determining which risk category an individual fell into (see Poon 2009 for details). Credit scores did not explicitly use race, gender, age or other socially meaningful variables (due, in part, to federal legislation prohibiting them from so doing), but they did have strong correlations with some of those characteristics.

States and the federal government for the most part allowed lenders to rely on credit scores, properly cleansed of explicit reliance on categories like race and gender. Should they do the same for status? You could argue that credit relationships are long term, and thus it makes sense to need more information about the potential borrower than you do for a purchase of a homogenous commodity (an iPad), but if we believe the Podolny story, then even these spot purchases may create a lasting tie between a firm’s brand and the consumer’s status, especially for any product consumed publicly. Where do we draw the line and say, no, the transaction is over and you must treat everyone you make the transaction with equally? And so on.

* When we read Podolny in Mark Mizruchi’s economic sociology seminar, we also read a short article about the champagne maker Cristal being upset that rappers had adopted it as their champagne of choice. Here’s the original Economist story about Cristal and a story about Jay-Z’s response. From the Economist: “Asked if an association between Cristal and the bling lifestyle could actually hurt the brand, [Cristal’s managing director] replies: ‘That’s a good question, but what can we do? We can’t forbid people from buying it. I’m sure Dom Pérignon or Krug would be delighted to have their business.'”